The Great Depression

The most severe economic crisis of modern times, generally agreed to have occurred between 1929 and 1939, is haunting. The Great Depression was a period when millions of people lost their jobs, many banks and businesses had gone bankrupt. In the late 1920s, US had been experiencing a rapid economic growth and financial excess and so, economic downturn was a result of such a boom-bust-boom cycle and the decision to inflate the US economy to help the UK economy, suffered from the World War 1, to remain on the Gold standard at a rate which was too high.

The decision of inflating the US economy resulted in the decline in demand for goods and services and lowered exports and so output began to fall and with the fall in output, prices began to fall resulting in deflation in the US economy. This deflation caused many additional problems such as difficulty to pay off debts taken during 1920s and fall in share prices which turned into a crash in the stock exchange market in 1929. Falling share prices triggered off a downfall in the confidence and consumer wealth. Such a decline in confidence made the public to withdraw their money from the banks. At that time, long queues of people waiting to withdraw their money from the banks used to be a common sight.

Many savers lost their savings, when banks went bankrupt facing the inability to repay. Banks were reluctant to lend any more causing a fall in investment and so a further fall in output and reduced spending due to the negative effect of the unemployment caused. Facing the falling exports earnings, US government called an increased in imports tariffs, further reducing the trade. In response, every government laid a cut in their spending, reducing the demand even further and so the depression spread rapidly around the world.

The loss of worldwide confidence ended up in much reduced levels of spending, demand and production and thus exaggerating the downward spiral.

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