Great Depression, often called the most prolonged economic slump in recent history, kicked off in the United States and sent shockwaves across the globe. It all began with the infamous stock market crash on October 24, 1929, known as Black Thursday. This meltdown caused a whopping $30 billion wipeout from Wall Street, triggering panic among investors and leading to the collapse of major financial institutions, including about 5,000 banks. Even Austria’s vital Boden-Kredit Anstalt was not spared.
Causes of Great Depression
The Great Depression is attributed to the combination of the following factors:
- Tight monetary policies adopted by the Central Bank of America Stock market crash of 1929.
- The failure of banks, which was the impact of the stock market crash as more people withdrew their savings from the banks leading to closure.
- Reduction in purchases due to diminished savings.
- The passing of Smoot-Hawley Tariff or the Tariff Act of 1930, imposed high taxes on imported goods.
- As a retaliation for the same, trade partners imposed high tariffs on goods made in the USA, which resulted in a decline in the world trade by around two-third between the periods of 1929-34.
- Environmental degradation by drought and farming practices did not help in soil preservation and resulted in large areas of non-agricultural land. This was known as the Dust Bowl. This was coupled with dust storms that destroyed crops and livestock.
How did the Great Depression End?
The end of the Great Depression can be attributed to many factors. The most prominent among them are:
New Deal
- The New Deal refers to the policies that were put into effect by Franklin Roosevelt. At that time he was the newly elected President of the United States. He orchestrated policies like the Emergency Bank Act, Emergency Farm Mortgage Act, and Agricultural Adjustment Act.
- These policies were implemented with the aim of stabilising the economy, and providing security to the farmers and their crops. All these policies and other new policies paved the way to inject stability in the economy.
World War II
- Some economists suggest that the start of World War II was one of the factors that ended the Great Depression. Due to the joining of the USA in the war, the government spending shot up significantly, leading to more employment.
- This coupled with sharp reduction in the areas of taxes and regulation during the end of World War II and contributed significantly to the end of the Great Depression. This completes the topic on the Great Depression, which was one of the longest periods of recession in world history.
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