Top 5 Causes of the Great Depression – Economic Domino Effect

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Jun 2, 2016 Waqas Ali, Guest Author

On October 29th 1929, the US Stock Market crashed and before anyone could take effective action, the country had reached its melting point. The US was heading into what would eventually become known as the Great Depression. A several successive event across the globe set off a chain reaction, impacting numerous countries around the world, as well as America.

https://c7c041b67585fbbd0e2291f21365aef2.safeframe.googlesyndication.com/safeframe/1-0-40/html/container.html

The authorities didn’t know what to do in the face of such a catastrophe of this scale. Many subsequent years were spent dealing with the fallout from this chaotic fiasco, with millions suffering due to its far-reaching effects. With that being said, it was also the longest & most widespread economic decline of the entire 20th century and truly showed the extent and speed to which an economy could decline.

1. The Roaring 20’s

Before the world entered into an economic decline, the performance of the stock market was well above par, and the industrial output more profitable than it had ever been. This situation was quite evident during the 1920’s – was also known as “The Roaring 20’s” – in the US. At this time the US was overdependent on its production industries, including automobiles and ship building docks.

Income inequality was increasing, and during this decade more than 60% of the population were living below the poverty line. Just 5% of the wealthiest classes received 33% of the nation’s income. This false sense of prosperity led to flooding of products in the markets that weren’t affordable to the masses, setting off a chain reaction that started with the closing of factories and sudden withdrawal of investments. The middle class tried to save its money by reducing spending. When spending was reduced, even more goods on the market went unsold. With profits falling, work forces had to be cut, increasing poverty and fueling a negative economic cycle.

Read also: The Hemp Bale Battle – Ingenious Idea Won the Siege of Lexington

Depression Strikes
Depression Strikes

Read also: Captured and Tortured by the Japanese She was Awarded “Hero of the Soviet Union”

2. Ensuing Global Crisis

Europe hadn’t exactly come to terms to the effects of World War I. There were horrible consequences of the Great War; the surviving population had lost their jobs and there was no way the Government could provide unlimited catalysts for reconstruction.

A Glimpse of Berlin
The heart of Berlin in ruins.

The US was the prime exporter at the time and was supplying Europe with almost all commodities, basic and advanced. The European Governments that had taken loans from American banks couldn’t pay them back and one after the other started defaulting on them. The American banks had no option but to stop giving out loans. This brought Europe’s purchasing power even further down, setting the scene for the Great Depression.

Read also: Futuristic Cannons of B-29 Superfortress: Ahead and Behind the Times

3. The Stock Market Crash

The Roaring Twenties gave almost all US bankers and investors a false sense of pride, especially those dealing in stocks. The price of stocks had begun to decline since September and on October 18th they were in free-fall. Panic set in and almost all investors wanted real money in their hands. On October 24th over 12 million shares were traded! The panic was mounted and investment companies rushed in to stabilize the situation. However, it was too late. On the coming Monday, the market was in complete free-fall.

Crowd outside NYSE
Crowd outside NYSE

Top 5 Causes of the Great Depression – Economic Domino Effect

Jun 2, 2016 Waqas Ali, Guest Author

On October 29th 1929, the US Stock Market crashed and before anyone could take effective action, the country had reached its melting point. The US was heading into what would eventually become known as the Great Depression. A several successive event across the globe set off a chain reaction, impacting numerous countries around the world, as well as America.

https://c7c041b67585fbbd0e2291f21365aef2.safeframe.googlesyndication.com/safeframe/1-0-40/html/container.html

The authorities didn’t know what to do in the face of such a catastrophe of this scale. Many subsequent years were spent dealing with the fallout from this chaotic fiasco, with millions suffering due to its far-reaching effects. With that being said, it was also the longest & most widespread economic decline of the entire 20th century and truly showed the extent and speed to which an economy could decline.

1. The Roaring 20’s

Before the world entered into an economic decline, the performance of the stock market was well above par, and the industrial output more profitable than it had ever been. This situation was quite evident during the 1920’s – was also known as “The Roaring 20’s” – in the US. At this time the US was overdependent on its production industries, including automobiles and ship building docks.

Income inequality was increasing, and during this decade more than 60% of the population were living below the poverty line. Just 5% of the wealthiest classes received 33% of the nation’s income. This false sense of prosperity led to flooding of products in the markets that weren’t affordable to the masses, setting off a chain reaction that started with the closing of factories and sudden withdrawal of investments. The middle class tried to save its money by reducing spending. When spending was reduced, even more goods on the market went unsold. With profits falling, work forces had to be cut, increasing poverty and fueling a negative economic cycle.

Read also: The Hemp Bale Battle – Ingenious Idea Won the Siege of Lexington

Depression Strikes
Depression Strikes

Read also: Captured and Tortured by the Japanese She was Awarded “Hero of the Soviet Union”

2. Ensuing Global Crisis

Europe hadn’t exactly come to terms to the effects of World War I. There were horrible consequences of the Great War; the surviving population had lost their jobs and there was no way the Government could provide unlimited catalysts for reconstruction.

A Glimpse of Berlin
The heart of Berlin in ruins.

The US was the prime exporter at the time and was supplying Europe with almost all commodities, basic and advanced. The European Governments that had taken loans from American banks couldn’t pay them back and one after the other started defaulting on them. The American banks had no option but to stop giving out loans. This brought Europe’s purchasing power even further down, setting the scene for the Great Depression.

Read also: Futuristic Cannons of B-29 Superfortress: Ahead and Behind the Times

3. The Stock Market Crash

The Roaring Twenties gave almost all US bankers and investors a false sense of pride, especially those dealing in stocks. The price of stocks had begun to decline since September and on October 18th they were in free-fall. Panic set in and almost all investors wanted real money in their hands. On October 24th over 12 million shares were traded! The panic was mounted and investment companies rushed in to stabilize the situation. However, it was too late. On the coming Monday, the market was in complete free-fall.

Crowd outside NYSE
Crowd outside NYSE

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