I try to learn more in depth about topics that interest me. I was reading about the Great Depression, but it is so hard to understand for me what exactly cause it, as I read it, it feels like a mix of fancy words that don’t tell me much (likely due to my lack of knowledge and english not being my 1st language). So, could anyone explain me in simple words what exactly cause the Great Depression?
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The United States emerged from WW1 as a growing economic power. A lot of places in Europe were damaged (both physically and in their labor force from the causalities of war), while the US had stayed out of the War basically until the last year but had rapidly increased the manufacturing industry during the lead up to entry. This set the stage for an absolutely massive economic expansion during the 20s as the recently expanded industrial base was turned towards consumer production from a wartime economy. Things were groovy. American factories were booming, the banking sector was making big loans to recovering nations and funding business expansion.
The stock market was doing great, anybody could make money off of it. It only seemed to go up! This caused a lot of speculative (i.e. reckless) behavior when it came to investing. People would take out loans to invest. People didn’t really realize it at the time, but it was a huge bubble.
In late 1929, the bubble popped. The easy money dried up. There were bank runs (this was before banks had insurance like they do now) and banks would become insolvent overnight. People lost their life savings if they had them stored in banks. Nobody wanted to spend money and the economy crashed to a halt. It became a vicious cycle – the less people were willing to spend money, the worse the economy became, and as the economy worsened, there was less money to go around. And remember how the US was loaning money to Europe to help with the war recovery? Yeah, that money dried up too. So now the issues were spreading outside of the US.
Nowadays the Federal Reserve would step in and inject money into the economy, but it didn’t. The Federal government also made big missteps by instating tariffs on goods going in and out of the economy – this made things even worse. So poor response this turned a bad recession into something even worse – the Great Depression.
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