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The Great Depression


The Great Depression was the worst and longest economic downturn in the history of the world economy. The Depression began in 1929 and lasted until 1939. This economic meltdown affected Western industrialized economies but its effects spread across other nations. The Great Depression began in the United States, which experienced its worst effects. However, some argue that the Depression began about 10 years earlier in Europe but the United States assumed that it was immune to such a downturn. Consequently, the American government at that time did not formulate policies and measures to ensure that the country did not experience the same meltdown as Europe.

Causes of the Great Depression

The Great Depression in America began with overproduction and low prices in the agricultural sector. The country was well advanced in technology and farmers increased their production levels. Prices dropped due to increased supply, which was followed by a drought. Farmers could no longer pay their loans and some banks closed down. The American economy policy in the 1920s was laissez faire and this led to uneven distribution of wealth. The rich controlled major sources of income and became richer. There was a significant and constant decrease in spending. International policies in Europe and America that supported an increase in tariffs brought international trade to a standstill.

Nations that owed America billions of dollars could not honor their obligations because of the effects of the depression. Despite these events, Americans continued to invest heavily in the stock market, which hit its highest mark in 1929. A decline began soon after and on 24th October 1929, investors began to sell millions of shares in panic as the decline persisted. The stock market crashed on 29th October 1929 (Black Tuesday) and investors including banks lost billions of dollars. The resultant economic downturn lasted for 10 years and spread to other economies especially America’s trade partners.

The Effects of the Great Depression

The effects of the Great Depression were more severe in America but were felt across all world economies. Investors in the stock market could not pay their loans. These included real estate companies. People demanded their deposits from banks in panic and as a result, there was less money in circulation. Government’s efforts to reverse the resultant deflation did not yield results. Companies closed down because of deflation and low demand while some laid down thousands of their workers. Consequently, unemployment levels increased. Real estate properties that were once priced possessions lost value. Investors in real estate could not pay their mortgages. Banks repossessed their properties, which were worthless because no one could afford to buy them. Over nine thousands failed closed down. Nations had to implement major changes in their macroeconomic policies and institutions to recover from the Great Depression.

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