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Roosevelt's New Deal

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Roosevelt's New Deal

On July 2, 1932, at the Democratic National Convention, the crowd listened intently to the phrase," I pledge you, I pledge myself to a new deal for the American people." The New Deal name was soon applied to the program of reform and recovery instituted by Franklin Delano Roosevelt. During the early part of the Great Depression, the economy had ground to a halt as a result of the stock market crashing and the unemployment rates skyrocketed as businesses shut down. Only a very small portion of the population actually held stock. The cause of the Great Depression was really a result of shallow economical prosperity. Most of the farmers and other industries struggled in the 1920's. Low prices, suppressed wages and production material prices, and lopsided distribution of income all influenced the spiraling effect of the Great Depression. The relative greed of businesses in terms of profit margins and little interest in the increase of wages and positive working environments also played a role. By not making allowances for increasing wages, businesses essentially reduced the spending power of the workforce. This made the products these workers helped to produce unavailable to them. The banking industries were also involved by reacting inappropriately to economical trends right before the crash. An increase in credit flexibility might have helped reduce some of the dramatic effects of the stock market crash. The relative reduction in disposable income as well as an inflexible credit system created a dramatic reduction in spending and effectively promoted a drastic reduction in the value of the dollar. When the market crashed, all of these factors that were hidden by a general belief in permanent wealth and prosperous trends sent the economy into a tale spin. Many believed that the United States would decline into dissolution and little faith was placed with the current policies of Herbert Hoover's administration. The American public desperately needed someone to guide them through the most economically debilitating period in history. They were looking for someone with a plan that would help kick start the economy and bring prosperity back to the masses.

The gravity of the Great depression called for governmental reforms and programs to protect and maintain the general welfare of its citizens. Franklin Roosevelt utilized a committee of people from differing points of view to aid in his legislative ideas. This committee, called the Brain Trust, disagreed and argued over many of the policies implemented during the New Deal era. This conflict was probably as helpful as it was harmful to the decision-making processes needed for instituting the programs and organizations introduced in the following years. The New Deal would bring about a new beginning in public welfare by setting up the framework for a welfare state, which is still in existence today. The New Deal program is usually divided into three periods. The first phase (1933-34) attempted to provide recovery and relief from the Great Depression through programs of agricultural and business regulation, inflation, price stabilization, and public works (New Deal 1993). Fortunately for Roosevelt, the Democratic Party held the majority in Congress. This allowed Franklin Roosevelt to churn out legislation with almost no resistance. On his second day in office, FDR called for a special session of Congress which would ultimately establish numerous emergency organizations, notably the National Recovery Administration (NRA), which attempted to stabilize prices and wages through cooperation between the government, business, and labor, the Federal Deposit Insurance Corporation (FDIC), which used various means to rebuild trust in banking, the Agricultural Adjustment Administration (AAA), which aided farmers through compensation, the Civilian Conservation Corps, and the Public Works Administration; both of which employed many people to work on public building projects. Congress also instituted farm relief, tightened banking and finance regulations, and founded the Tennessee Valley Authority (New Deal 1993). These various organizations were all designed to improve the social and economic situations Americans faced during this period in United States history. The banking industry was the first focus of Roosevelt's administration.

Banks had been closing all over the country due to frightened citizens withdrawing all of their money. In order to increase trust in the banking system, Congress passed the Emergency Banking Relief Act of 1933. The bill gave the president broad powers over financial transactions, prohibited the hoarding of gold, and allowed for the reopening of sound banks, sometimes with loans from the Reconstruction Finance Corporation (Nash and Jefferey et al 777). It also passed the Banking Act of 1933, which strengthened the Federal Reserve System, established the Federal Deposit Insurance Corporation (FDIC), and insured individual deposits up to $5,000 (777). These legislative acts encouraged the public to once again trust their banks, and to deposit their money back in them instead of hiding it at home in or under the proverbial mattress. The allowance for insurance limits was increased greatly, later on, as a direct result of this regained trust and the consequentially larger sums of money being reintroduced into the banking system.

With this new trust in banks being established, the focus was turned to the common household and farmers. The Agricultural Adjustment Act and the Home Owners' Loan Corporation were both formed to help farmers and other households with paying their burdensome mortgages. This form of aid would also be instrumental in helping the mortgage-holding banks to stay in business. The Frazier-Lemke Farm Bankruptcy Act was aimed at helping to save farms from going under due to bank foreclosure. Along with postponing final foreclosure for three years, allowing for potential recovery from foreclosure, this legislative act also made provisions for moving farmers from land with poor soil and poor production potential to good farming areas. Some of these reforms were not all widely praised and or completely successful. As in the case of the AAA, speculation grew to outrage as farmers were given compensation for growing less acreage. The subsequent intentional destruction of crops and the use of slaughtered pigs as fertilizer increased the inspection into a plan that wasted food while so many went hungry. This particular plan failed, but a revision of the original idea, during the second phase of the New Deal, succeeded with the Soil Conservation and Domestic Allotment Act. This act planned to remove acreage from production while conserving the soil from erosion that had taken so much of the topsoil during drought and high winds.

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