The Great Depression and Its Causes

The Great Depression was the worldwide economic depression of the 1930's. It was the longest and most widespread depression of the 20th century affecting the whole of the western world.
It originated in the United States when stock prices began to fall at the beginning of September 1929. The 29th October became known as Black Tuesday and was the point where the financial crises spread worldwide. This eventually led to a lack of consumer confidence. The general public were expecting deflation and didn't want to spend until prices fell, which contributed to a struggling economy. People were also reluctant to borrow so they didn't have as much to spend as they might have otherwise.
The Great Depression had a big effect on jobs. Businesses failed and new businesses weren't starting up so there weren't replacement jobs for those who became unemployed. Major industries such as automobiles and farming struggled, which resulted in mass unemployment. It also meant people had less money further increasing the economic downfall. Initially it was the US that suffered but it quickly impacted other areas.
Between 1929 and 1932 the United States' foreign trade declined by 70% and industrial production fell by 46%. Unemployment increased massively; by 607%. Other countries such as Great Britain, France and Germany also suffered a lot, although not quite as much as the United States.
There are a number of things that may have caused or contributed to the beginning of the Great Depression. The main ones are outlined below:
Debt Inflation
Too much debt meant that the cost of debt increased. People and businesses who were in debt were put into spiralling problems as interest rates on borrowing increased. This had the eventual impact of banks failing because loans could not be paid back.
Disparities in Production and Incomes
The economy was producing more than it was able to sell because consumers didn't have enough income to purchase everything that was being made. This was in part because of unequal distributions in wealth, meaning that many had no, or very little, disposable income. Although much was being produced there wasn't an adequate market for these products. Large factories were producing endless product that they could not sell.
Structural Problems Within Financial Institutions
Banks and other financial institutions were not well positioned to cope with the financial crises. Much of this was connected to farming. Farm prices fell drastically in the late 20's and interest rates went up just as dramatically. This put farmers, as well as the institutions they owed money to, in real trouble. Many, mostly small, banks specialised in farming and had major problems. It was not only small banks who were to blame though. Large banks failed to maintain adequate reserves. Too much lending and investing heavily in the stock market proved a major mistake. All this meant that in a tough economic situation banks were badly positioned.
Collapse of International Trade
After the First World War, many European nations owed large sums of money to the US. Despite much pressure, the US refused to forgive or reduce the debts. The only way these could be repaid was for these countries to borrow further. The US banks started loaning large amounts to Europe so they could repay their own debts to the US government. Once the Great Depression hit it was no longer possible for these countries to borrow from US banks meaning the whole situation got more out of control. This caused the European economies to collapse further.
Smoot-Hawley Tariff Act 1930
The Smoot-Hawley Tariff Act raised tariffs on many goods imported into the United States, meaning higher taxes for importers. Many were against it, including Henry Ford. President Hoover was initially oppose but was convinced by his party and some business leaders. Franklin D. Roosevelt spoke out against the policy in his presidential campaign. The aim was to raise money and improve the economic situation in the US, but it had the opposite effect. Importers unsurprisingly began to pull out as it was no longer worth the cost. Other countries were unhappy with the policy with many boycotting the US and retaliating with their own policies by increase taxes on their own imports from America. All this meant fewer business exchanges between the US and other countries. Global trade was impacted and the world's economy went further down hill.
Not everyone agrees as to the main cause of the Great Depression and it is likely that is was a combination of reasons. It began in late 1929 and it lasted throughout the 1930's and it wasn't until the early 1940's that its affect was over.

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