Top 10 Biggest Causes of the Great Depression
The Great Depression was a period of massive economic downturn that affected much of the world. Many factors contributed to the onset of the Depression, with some having a greater impact than others.
How did the booming 1920s transform into the crumbling 1930s? Let's explore the series of events that led to this era and identify which factors had the greatest overall effects.
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Weak banking system
Most banks were privately owned, and many didn't have the assets to stay afloat. People rushed to withdraw their money, fearing they might lose it, and banks didn't have enough to fulfill those demands. This led to a large wave of bank collapses.
Yeah, people panicked when the market crashed, and people started to pull their money out. The banks couldn't handle it, leading to even more collapses, and our economy fell. On-point list.
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Freezing of the new credit system
Almost everyone was on credit, and this relatively new system appeared magical to its users. However, because banks lacked the assets to cover their credit obligations, everything froze, and money stopped circulating.
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Greatly increasing unemployment rates
Businesses were collapsing rapidly, in part due to their inability to retain workers. Unable to pay them due to the collapsing banks, workers were laid off swiftly. This left unemployment rates skyrocketing to levels the U.S. had never seen, higher than the UK, France, and Germany combined.
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Agricultural failures
There were rising debts in agriculture due to the overspending on new machinery. Combined with low prices, this meant that those in this field had to stock up on excess goods to maintain financial stability. Unfortunately, most farms couldn't make a profit during this time.
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Currency deflation
Price levels dropped, and with businesses drowning in debt, there was little they could do to save themselves. Decreasing money supplies and increasing products led to a rapid fall in prices.
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The U.S. gold standard
The U.S. was facing massive deflation, which is detrimental to any economy. America wasn't buying many imported goods, and foreign gold outflows devalued international currency. Other countries also suffered from this trade imbalance, which worsened the global depression.
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Rising international debts
Numerous nations, such as Germany, were facing debts and reparations from the Great War. When reparations couldn't be paid off, the economies of other nations involved also fell.
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The U.S. placement of high tariffs on traded goods
International trade was faltering primarily due to the high tariffs imposed by the U.S. Because of this, potential buyers abandoned the industries, further worsening the state of global trade.
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The stock market crash of 1929
Some people like to say that this sole factor led to the Depression, but that's obviously not true. It played a role for those who invested primarily in stocks. As prices dropped, people pulled out quickly, eventually causing the entire market to crash.
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Lack of government interference
While Hoover was president, if there were actions to be taken to stop the Depression from worsening, the government was hesitant to act. If they did take action, it wasn't enough. Hoover believed the Depression would mostly resolve itself, so nothing significant was done to save the economy. FDR, however, had a more open mind about solving the Depression with the New Deal, but that's a topic for another time.
Yep, Hoover simply didn't give a crap. A lot of my family who lived through the Depression hated Hoover.