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After the US returned to the postwar gold standard and Fordist mass production made for expectations of future industrial gains, there was an increase in confidence for owners of capital. However, in 1929, the credit cycle reversed, which led to a shift in expectations, the NYSE to bust, and agricultural prices to plummet. This was exacerbated by postwar inflation and a drop in farm incomes, which diminished the demand for manufactured goods. (Levy 356-357, 367, 370). -
After the stock market crash, several countries' financial systems collapsed. US banks that survived hoarded their resources and workers experienced slashed wages and mass layoffs due to deflation, causing an economic downward spiral. The Fed raised interest rates, restricting the supply of credit and money while up to 22.9% of Americans were unemployed. The value of world trade went down 65%, while economic output fell 52%, making it the worst financial panic in history. (Levy 356, 376-379). -
President Franklin D. Roosevelt passed a series of reforms to try to combat the Great Depression. Policies included the WPA and the PWA which employed people through the government and invested in infrastructure. Many reforms altered both the economic and social landscape through its programs: Social Security gave a safety net for the elderly, the FDIC gave assurance to bank depositors, and the FHA gave safety to lenders. These programs continue to be relevant today. (Kennedy 254, 266). -
Global war that ended the Great Depression. The war had a demand shock on the global economy and led to a massive increase in deficit spending. There was a rapid expansion in war-related sectors such as transportation which increased productivity and led to a mass consumer ideology after the war. Military and naval buildup in the US also helped lower the unemployment rate to under 2%, down from ~25% in 1933. Finally, it established the US as the leading global economic power. (Field 673-675). -
After WWII, as mass consumerism shaped postwar society, banks and stores began issuing credit cards so that people could make big purchases without having to spend lots of money at once. The Everything Card allowed consumers to spend credit without being limited to just one store, as credit cards had previously restricted where one could purchase. It greatly contributed to the growth of the modern day credit card system and made credit cards more popular, despite its failure. (Zumello 552-554). -
Nations in the Middle-East with important oil reserves placed an embargo on the US due to its relations with Israel, shocking the already strained economy that was due to a number of factors. As a result, the price of oil increased by 387%, and combined with simultaneous inflation and deflation, led to economic stability in the 1970s. Not only did it mark the end of the postwar "golden age" of capitalism, it transitioned the economy to one of uncertainty and global competition (Corbett). -
The ECOA eliminated discrimination in extending credit and also promoted fair lending. In 1974, it was passed to prohibit discrimination based on marital status and gender. In 1976, the act was extended to forbid discrimination on the basis of race, religion, national origin, and age. Previously, credit was seen as a privilege and a marker for being middle-class. However, this expanded market participation and opened up credit access like never before. (Hyman 225-226). -
In response to stagflation, President Ronald Reagan proposed a supply-side revolution that consisted of lowering taxes, mostly for the wealthy so that wealth could trickle down and government activity would scale down. He argued that this would lower inflation, and he advocated for a smaller government. However, while unemployment went down, budget and trade deficits occurred, and the national debt just about tripled. This supply-side idea is still used by Republicans today. (Blanchard 17-18). -
The Glass-Steagall Act had provided a firewall, forcing banks to choose whether or not they were an investment bank (in which they invested people's money) or commercial (where they provided small business loans and mortgages). By repealing this act, banks no longer had to choose between the two, essentially blending capital. This in turn allowed banks to turn towards riskier investments, such as Mortgage-Backed Securities, contributing to the housing crisis that followed in 2008. (Thomson). -
When the bank Lehman Brothers filed for bankruptcy, there was a decline in housing prices and mortgage-related assets, and unemployment rose to 10%. To combat this, the federal government stepped in after they had left the banks largely unregulated for the past decade, bringing back transactional liquidity to global capital markets to end the panic. This was the worst panic since the Great Depression and led to partisan debates that have shaped the political parties today. (Levy 702-703, 719)