The Great Depression and the New Deal (1929-1939)

The New York Stock Exchange collapses on Black Tuesday, with the Dow Jones Industrial Average losing over 12% of its value. The crash follows years of speculative frenzy and margin buying. By mid-November, the Dow has fallen from its September peak of 381 to 198, wiping out billions in paper wealth and triggering economic collapse.

President Herbert Hoover signs the Smoot-Hawley Tariff Act, raising tariffs on thousands of imported goods to record levels. The Act provokes immediate retaliation from trading partners worldwide, contributing to a 65% collapse in global trade and deepening the Depression. US exports fall from 5.2 billion in 1929 to 1.7 billion in 1933.

The collapse of the Bank of United States, the fourth largest bank in the US with over 160 million in deposits, sparks a nationwide banking panic. More than 1,350 banks fail in 1930 alone. Depositors lose their life savings, and the money supply contracts sharply, accelerating the deflationary spiral that defines the Depression.

Creditanstalt, Austria's largest bank representing 16% of the nation's GDP, becomes insolvent. The collapse triggers a cascading banking crisis across Central Europe. Germany's second largest bank, Danatbank, fails in July 1931. The economic devastation destabilizes the Weimar Republic and sets the stage for Hitler's rise to power in the 1932-1933 elections.

After massive gold outflows and a failed austerity program, Britain abandons the gold standard, allowing the pound to depreciate by 25%. Norway, Sweden, Denmark, and Finland follow. The departure proves beneficial, freeing the Bank of England to cut interest rates and pursue expansionary monetary policy, enabling earlier recovery.

The Dow Jones Industrial Average hits its lowest point of the 20th century at 41.22, representing an 89% decline from its 1929 peak. US industrial production is half of pre-crash levels. Unemployment reaches 23% (over 13 million Americans). Nominal GDP has fallen from 105 billion to 60 billion.

Franklin D. Roosevelt is elected president in a landslide, defeating Herbert Hoover with 57% of the popular vote and carrying 42 of 48 states. Democrats win massive majorities in both houses of Congress. Roosevelt promises a "New Deal" for the American people, though he offers few specific policy proposals during the campaign.

On taking office during the depths of the banking crisis, FDR immediately declares a national bank holiday and calls Congress into special session. Over the historic First Hundred Days, Congress passes the Emergency Banking Act, the Economy Act, the Civilian Conservation Corps (CCC), and the Agricultural Adjustment Act, launching the New Deal.

The Banking Act of 1933 (Glass-Steagall) creates the Federal Deposit Insurance Corporation (FDIC) to insure deposits, separates commercial banking from investment banking, and establishes the Federal Open Market Committee. The Act restores depositor confidence and prevents banking panics for the next five decades.

The Works Progress Administration (WPA) is created as the largest New Deal agency, employing millions on public works projects. Over eight years, the WPA builds 650,000 miles of roads, 125,000 public buildings, and employs artists, writers, and musicians. At its peak, the WPA employs 3.3 million workers per month.

The Social Security Act establishes a permanent federal system of old-age pensions funded by payroll taxes, unemployment insurance, and aid for dependent children. Alongside the Wagner Act guaranteeing workers' right to unionize, the Act creates the foundation of the American social safety net, marking a fundamental expansion of federal responsibility for individual welfare.

Fearing inflation and budget deficits, FDR and Congress cut spending and raise taxes in 1937 prematurely. Industrial production drops 30%, and unemployment surges from 14% to 19%. The recession demonstrates the fragility of the recovery and the dangers of premature austerity. FDR reverses course in 1938, increasing spending to restart growth.

With the outbreak of World War II in Europe, massive government defense spending finally absorbs the remaining unemployed workers and idle industrial capacity. US GDP more than doubles between 1939 and 1945, and unemployment falls to 1.2%. The war, more than the New Deal, proves to be the force that fully ends the Great Depression.