To What Extent Did the 1929 Stock Market Crash Cause the Great Depression
The Great Depression of the late 1920s and '30s remains the longest and almost severe economic downturn in mod history. Lasting near 10 years (from late 1929 until near 1939) and affecting most every country in the globe, it was marked by steep declines in industrial product and in prices (deflation), mass unemployment, banking panics, and sharp increases in rates of poverty and homelessness. In the United States, where the effects of the depression were by and large worst, between 1929 and 1933 industrial production fell near 47 per centum, gross domestic product (Gross domestic product) declined past 30 percent, and unemployment reached more than than xx per centum. Past comparison, during the Smashing Recession of 2007–09, the second largest economic downturn in U.Southward. history, Gross domestic product declined by 4.iii percent, and unemployment reached slightly less than 10 percentage.
There is no consensus among economists and historians regarding the exact causes of the Peachy Low. However, many scholars agree that at least the post-obit iv factors played a office.
The stock market crash of 1929. During the 1920s the U.S. stock market underwent a historic expansion. Equally stock prices rose to unprecedented levels, investing in the stock market came to exist seen every bit an piece of cake way to make money, and even people of ordinary means used much of their dispensable income or even mortgaged their homes to buy stock. Past the cease of the decade hundreds of millions of shares were being carried on margin, meaning that their purchase price was financed with loans to exist repaid with profits generated from e'er-increasing share prices. Once prices began their inevitable pass up in October 1929, millions of overextended shareholders savage into a panic and rushed to liquidate their holdings, exacerbating the decline and engendering further panic. Between September and November, stock prices roughshod 33 percent. The effect was a profound psychological shock and a loss of confidence in the economy amid both consumers and businesses. Appropriately, consumer spending, especially on durable goods, and business investment were drastically curtailed, leading to reduced industrial output and job losses, which further reduced spending and investment.
Banking panics and budgetary contraction. Betwixt 1930 and 1932 the United States experienced 4 extended banking panics, during which large numbers of banking concern customers, fearful of their bank'due south solvency, simultaneously attempted to withdraw their deposits in greenbacks. Ironically, the frequent outcome of a banking panic is to bring nigh the very crisis that panicked customers aim to protect themselves against: even financially good for you banks tin can be ruined past a big panic. By 1933 one-fifth of the banks in beingness in 1930 had failed, leading the new Franklin D. Roosevelt assistants to declare a iv-twenty-four hour period "depository financial institution holiday" (later extended by 3 days), during which all of the land's banks remained closed until they could prove their solvency to government inspectors. The natural effect of widespread bank failures was to subtract consumer spending and business investment, because in that location were fewer banks to lend money. At that place was also less money to lend, partly because people were hoarding information technology in the form of cash. According to some scholars, that problem was exacerbated by the Federal Reserve, which raised interest rates (further depressing lending) and deliberately reduced the money supply in the belief that doing so was necessary to maintain the gilt standard (see beneath), by which the U.Due south. and many other countries had tied the value of their currencies to a stock-still corporeality of gold. The reduced coin supply in plow reduced prices, which further discouraged lending and investment (considering people feared that time to come wages and profits would not exist sufficient to comprehend loan payments).
The gold standard. Any its effects on the money supply in the United States, the gold standard unquestionably played a role in the spread of the Great Depression from the United States to other countries. Every bit the U.s. experienced declining output and deflation, it tended to run a trade surplus with other countries because Americans were ownership fewer imported goods, while American exports were relatively cheap. Such imbalances gave ascension to significant foreign golden outflows to the U.s.a., which in turn threatened to devalue the currencies of the countries whose gilt reserves had been depleted. Appropriately, foreign central banks attempted to counteract the trade imbalance by raising their interest rates, which had the effect of reducing output and prices and increasing unemployment in their countries. The resulting international economic decline, especially in Europe, was nearly equally bad as that in the United States.
Decreased international lending and tariffs. In the late 1920s, while the U.Southward. economy was notwithstanding expanding, lending by U.South. banks to strange countries fell, partly considering of relatively high U.Due south. interest rates. The driblet-off contributed to contractionary effects in some borrower countries, especially Germany, Argentina, and Brazil, whose economies entered a downturn even before the beginning of the Bully Depression in the The states. Meanwhile, American agricultural interests, suffering because of overproduction and increased competition from European and other agricultural producers, lobbied Congress for passage of new tariffs on agricultural imports. Congress eventually adopted broad legislation, the Smoot-Hawley Tariff Act (1930), that imposed steep tariffs (averaging 20 percent) on a wide range of agricultural and industrial products. The legislation naturally provoked retaliatory measures past several other countries, the cumulative outcome of which was declining output in several countries and a reduction in global trade.
Just as there is no general agreement near the causes of the Swell Depression, there is no consensus about the sources of recovery, though, again, a few factors played an obvious office. In general, countries that abandoned the gilt standard or devalued their currencies or otherwise increased their money supply recovered first (United kingdom abandoned the gilt standard in 1931, and the United States finer devalued its currency in 1933). Fiscal expansion, in the form of New Deal jobs and social welfare programs and increased defence force spending during the onset of World War 2, presumably likewise played a role past increasing consumers' income and aggregate demand, but the importance of this gene is a matter of debate among scholars.
Source: https://www.britannica.com/story/causes-of-the-great-depression
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