Wednesday, June 10, 2015

What Caused the Great Depression

Perfect Market with No Crashes/Recessions/Bubbles - Inevitable 

The Great Depression was a global financial crisis which used up most of the developed world throughout the 1930s and the first warnings of its onset was seen at the end of 1929 though most of the countries did not notice its true effect till 1930 or much later.

 When it had also ended, it differed from country to country but again signs of recovery were seen in the later years of 1930. Things looked up for most of the economies by 1940. Several economists tend to dream of perfect market with no crashes, recessions or bubbles occurring, though these occurrences can be unavoidable when humans tend to be the players.

The Great Depression which was one of the worst blows to the world economy that served as a major example on how markets can be at risk. Stock market crash of 1929 quoted as the beginning of the Great Depression was headed by the Roaring ‘20s which was a period when the American public learned about the stock market, went in head first and the crash swiped away several people’s investments as well as the public who were terribly shaken. When the banks failures wiped away the savings of those who had not even invested in the stock market, they were devastated.

Great Depression – Originating from US

Though the market crash could not be avoided, the bank failures could have a way of preventing with improved regulation.Significantly, the Wall Street Crash that took place in October 1929 has been envisaged as an interchangeable term for the Great Depression and this occurrence is one of the causes originating from the US, leading to the longest as well as the deepest worldwide recession of the 20th century.

The Great Depression could have occurred immediately after the downfall of the stock market. There are several factors which lead to it resulting in a more far reaching economic crisis. Overproduction seems to be one of the serious faults leading to the Great Depression which was not only a problem in industrial manufacturing but an agricultural issue as well.

 From the middle of 1920s, American farmers used to produce far more food than the population used to consume. As the farmers extended their production to support the war effort at the time of WWI, they also programmed their technique which was a process that improved their output as well as cost them a lot of money, thus incurring a lot of expenses and putting them in debt.

Agriculture Struggled/Industry Progressed 

Moreover, land prices for several farmers also dropped by around 40%. This resulted in the agricultural system beginning to fail during the 20s with large sections of the population with less money and no work. With demand falling with increasing supply, the price of products dropped which in turn left the over-expanded farmers short changed and farm often foreclosed. This gave way to rise in unemployment and a fall in food production till the end of 1920.

As agriculture struggled, the industry progressed in the periods earlier to the Wall Street Crash and in the `boom’ period prior to the `bust’, many people went on purchasing household appliances, cars and consumer products. However, these purchases were done on credit and as the production continued rapidly, the market swiftly dried up resulting in too many products with less people earning enough money to purchase them. For instance, the factory workers could not afford the goods coming from the factories they worked for. The economic crisis that was going to affect Europe meant that the products were not sold across the Atlantic resulting in America’s industries creating an unsustainable excess of products.

Subject of Dispute – Historians/Economists

The cause of the Great Depression became a subject of dispute by historians as well as economists and it shaped much of the period between the two world wars for several of the developed countries and continues to serve as a lesson on a variety of economic practices. The urge to view the Great Depression as an occasion that was centred on the US stock market could be avoided, since it was a global depression which had several of its roots in 1920s and the early 30s.

Its effect was also felt throughout Europe. It is vital that the overproducing industry, together with subdued trade, followed by rising unemployment, failing banks as well as ineffective government policy was taken in consideration to gain a holistic and an accurate understanding on the happening of the Great Depression. It was the outcome of an unlucky combination of factors, a restrained Fed, protectionist tariffs and a Keynesian, government centred recovery plan.

The same could have been shortened or avoided with some change in any of these cases. Most of the groups of the government’s interference indicate that the quick recovery from other depressions/recession cycles would not have taken place as swiftly in 1929 since it was the first occurrence where the general public and not just the Wall Street elite had lost huge amount in the stock market. Likewise, the Fed could avoid error since it did not know that the government would be passing a trade-crushing tariff as well as take other uncertain measures.

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