The Great Depression
The Great Depression was a severe worldwide economic downturn that took place during the 1930s. It began after the stock market crash of 1929 in the United States, but quickly spread to almost every country in the world, though its timing and impact varied from nation to nation.
Causes
- Stock Market Crash of 1929: The immediate trigger was the 1929 Stock Market Crash, where stock prices on the New York Stock Exchange plummeted, leading to widespread panic selling.
- Bank Failures: Over 9,000 banks failed during the 1930s, largely due to bank runs by panicked depositors.
- Reduction in Consumer Spending and Investment: As wealth and income decreased, people cut back on spending and businesses reduced investments, further deepening the economic downturn.
- High Tariffs and Trade Barriers: Countries raised tariffs to protect domestic industries, which led to a decrease in international trade, exacerbating the global economic slump.
- Drought Conditions: In the US, the Dust Bowl conditions led to agricultural failures, which not only affected farmers but also contributed to broader economic decline.
Impact
- Unemployment: In the US, unemployment rose to 25%, with some cities reporting even higher rates.
- Poverty: Millions of people lost their jobs, homes, and savings, leading to widespread poverty.
- Global Effects: The depression affected nearly every country, with countries like Germany experiencing hyperinflation and political instability which led to the rise of extremist parties.
- Banking Crisis: Confidence in banks was shattered, leading to further economic instability.
Response
- The New Deal: In the US, President Franklin D. Roosevelt introduced the New Deal, a series of programs, public work projects, financial reforms, and regulations enacted by the government to provide relief, recovery, and reform.
- Worldwide Responses: Many countries implemented various economic policies to combat the depression. These ranged from currency devaluations to the adoption of protectionist trade policies.
- Keynesian Economics: The economic theories of John Maynard Keynes gained prominence, advocating for government intervention to stimulate demand through fiscal policy.
End and Aftermath
The Great Depression ended at different times in different countries. In the US, the economy began recovering with the onset of World War II, which led to increased industrial production and employment. The war effort essentially acted as a massive stimulus, pulling the US and other countries out of the depression.
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