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Great Depression Causes - What Were The Causes Of The Great Depression

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The Great Depression was a period of severe economic downturn in the United States as well as other countries around the world. The stock market crashed on October 29th, 1929. This led to the collapse of businesses, the rise in unemployment rate, and the rapid deterioration of the economy in the country. Money became less valuable, and people struggled to survive. While the stock market crash is what many say started the period known as The Great Depression, there were several causes that led to that point. Here is a look at what caused this grim period of economic turmoil in the United States.

Contrary to what some believe, the stock market crash is not exactly the starting point of The Great Depression. Rather, it is one of several causes. The stock market actually recovered mildly shortly after the October crash, but it was not nearly enough. The billions of dollars lost led to many companies failing, and consequently many people being placed out of work. The booming economy of the 1920’s saw many people investing in stocks hoping to secure savings for their lives. However, for those people who had money in stocks at the time of the October crash, they likely lost any chance of keeping those savings. That is why the stock market crash helped cause the downturn in the economic climate. Ironically, it was people’s false sense that the country would flourish well past the 1920’s that helped lead to the failure of the market.

One major cause was the failure of over 10,000 banks. At the time, people did not have their money insured by the government. So, when a bank flopped, the money people had in that bank was lost. That is why there were so many ‘bank runs’ during that time. People were frantic to pull out whatever money they had so that it would not be lost should the bank fail. Along with this, banks stopped giving out loans because they had no money to lend. Money was not coming in, and as a result more banks failed. Without loans people could not get by or start new businesses.

Another major problem that helped cause The Great Depression was relations with Europe. While the American economy was booming during the twenties, the economy in Europe was still trying to recover from the World War I. The United States made numerous loans to European nations, which ultimately went into default. With less money, Europe was buying fewer American products. The diminished exports were putting a tight grip on many companies. In the thirties, trade restrictions with Europe made the situation even worse.

Another prominent cause of The Great Depression was that people were no longer spending money. With the high unemployment rates and lower savings, it is understandable why people stopped spending. However, the failure to spend money helped put many companies out of business. With less demand from the public there was less need for products. The reduction in revenue meant that many companies could no longer afford to stay in business.

Obviously, unemployment was a huge factor in the event. As companies folded, more and more people were out of work. With people out of work, they had no means to sustain a healthy sense of living. They had no money to spend on commercial goods and no money to spend on housing. As a result, they were forced to migrate or simply wait it out. With no income, people cannot spend the money needed to turn the economy around.

There were many other causes that contributed to either the start or the worsening of The Great Depression. The fact that the entire monetary system was backed by gold did not bode well with the lack of spending. The Federal Reserve had massive failure in regulating and aiding banks as the crisis unfolded. Severe droughts during the time crippled agricultural systems, which caused even poorer economies in the Midwest. There was a great disparity in wealth and income as well. This is a problem that still persists to this day. In general, a combination of poor investing, lack of credit, unemployment, and inflation all helped create and sustain The Great Depression.

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almost 2 years ago


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quinta-feira, 7 de maio de 2015
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Postado por Carlos Roberto Guerios às 19:37 Enviar por e-mailBlogThis!Compartilhar no TwitterCompartilhar no FacebookCompartilhar com o Pinterest
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Carlos Roberto Guerios17 de maio de 2015 12:49

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