By 1932 when Franklin Roosevelt became president there was definitely a need for a new deal to stop the American economy from reaching rock bottom.

        During a period of prosperity or boom a rise in production becomes takes place. Employment, wages, and profits increase according to the level of boom. Businessmen express their optimism through investment to expand production. However, obstacles begin to occur that slow down further expansion. For example, production costs increase, shortages of raw materials may further hold back production, prices rise and consumers react to increased prices by buying less. As consumption starts to lag behind production, stock mount up, causing a price decline. Manufacturers begin to make cuts thus workers are laid off. Such factors lead to a period of liquidation. Businessmen become pessimistic as prices and profits drop. Production is cut and factory closures occur. Unemployment becomes widespread. A depression is in progress.

Recovery from a depression may be initiated by several events or factors, including a revival in consumer demand, the exhaustion of stock, or government action to stimulate the economy. Although generally slow and uneven at the start, the recovery soon gathers momentum. Employment increases, providing some additional money into the economy. Investment in capital-goods industries expands. As optimism enters the economy, the desire to speculate on new business ventures returns. A new cycle is under way.

        After the great depression, devices have been built into most economies to help prevent severe business declines. For instance, unemployment insurance provides most workers with some sort of income when they are laid off. Social security and pensions paid by many organizations provide some income to the increasing number of retired people. Although not as powerful as they once were, trade unions remain an obstacle against the collective wage drop that aggravated previous depressions. Schemes to support crop prices (such as the European Common Agricultural Policy) shield farmers from disastrous loss of income.