According to majority of the authors and scholars, The Great Depression is the worst economic downturn in the history of the United States of America. The economic slump is attributed to a number of factors. These are both domestic and global conditions. It led to several consequences thereafter.
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This paper unfolds the causal-effect relationship of the Great Depression, in a bid to uncover some of its causes and impacts. It proceeds from the ground that the economic recession had an array of causes, as well as several negative impacts on the US and foreign nations.
Causes and Effects of the Great Depression
Stock Market Crash of the Year 1929
October 29, 1929 is a day that will linger in the minds of many Americans for several years. The stock market crash that occurred on this day (commonly known as Black Tuesday), was a leading cause of the recession. The stock market had grown tremendously in the 1920s, prompting many people to invest in stock broking (Jakob 853).
Following the stock crash of 1929, the stockholders had to pay on stocks that were less than their initial payment. Those who had borrowed to buy the stocks could not repay their loans, and the lenders bore the biggest brunt by losing vast sums of money. At the end of 1930, America entered the economic decline, which impacted heavily on stockholders. They lost more than $40 billion dollars of investment two months down the line (Robert & Feldman 860-862).
Many of the small banks, especially in the rural areas, offered uninsured deposits to farmers. The leading banks had offered monumental loans to other countries. The banks that survived the harsh economic times were unwilling to give new loans, owing to the declining economic conditions.
This threatened their survival (Stauffer 110-112). When the banks failed to lend the foreign countries, European nations defaulted on all their outstanding loans. Consequently, many banks were rendered bankrupt and others got out of business.
The American Foreign Policy with Europe
The sharp fall in international trade championed the depression after 1930. When businesses started declining, the US government introduced the Smoot-Hawley Tariff in 1930 (Robert & Feldman 859-863). This was in an effort to safeguard American companies from the recession.
The tariff worked by charging high taxes for imports, and establishing retaliatory tariffs in different nations. Foreign trade accounted for a small portion of US economy, but it was adversely affected. The volume of trade between Americans and foreign countries reduced to an anticipated level (about 30%). The American exports also reduced, which forced many farmers to default their loans (Jakob 850).
Reduction of People’s Purchasing Power
Following the stock market crash and the overriding economic woes, many individuals stopped buying items. Consequently, there was a reduction in production and manufacture of items. This led to a reduction in the workforce. Failure to make payments led to item repossession by companies. Many inventories accumulated, the unemployment rate increased by more than 25%, and people had to spend less of their money, in a bid to cope with the economic situations of the time (Chee-Heong& Crowley 10-20).
The Great Depression is attributed to domestic and worldwide factors, and its effects were felt on all sectors of the US society; economic, moral, psychological, and social sectors. The country took long to recover from the economic downturn, and many people lost faith in the American economy. Nonetheless, the economy finally recovered, although it experiences some mishaps occasionally.
Chee-Heong, Quah, and Patrick Crowley.“A Reconsideration of the Great Depression.”South Asian Journal of Management 16.3(2009): 7-23. Print.
Madsen, Jakob.“Trade Barriers and the Collapse of World Trade during the Great Depression.” Southern Economic Journal 67.4 (2001): 848-868. Print.
Archibald, Robert, andDavid Feldman.“Investment during the Great Depression: Uncertainty and the Role of Smoot-Hawley Tariff.” Southern Economic Journal 64 (1998): 857-879. Print.
Stauffer, Richard. “The Bank Failures of 1930-31.”Journal of Money, Credit andBanking13.1(1981): 109-113. Print.