What caused the great depression? The Real Story

Causes of the Great Depression

What caused the great depression? What could have caused the booming 1920s to be followed with the worst economic disaster in US history? Here are the main causes of the great depression.

It all starts back at the beginning. In the 20s the prices of stocks were skyrocketing. People had more money and life was good. But it was all an illusion.

As prices soured so did business cost. This inevitably lead to a point where business’ were having a hard time staying both competitive and profitable. All this sparked the beginning of black Tuesday October 29, 1929 the day the stock market crashed.

After the crash Americans started spending less and started saving more. This lead to less production and less jobs, causing unemployment to go higher and higher.

Attempting to recover the US government passed a series of laws that ended up hurting the economy. One example was the Smoot Hawley Tariff, which set a high tax on foreign goods. All this did was lower trading between the US and other countries further hurting the US economy.

Bank Failures

Another major influence was the massive bank failures happening across the country. As banks disappeared so did the money that was deposited in them. There was no such thing as insured by the government at that time. In other words ordinary citizens where losing their life savings left and right.

So why did banks fail? There are three major reasons.

1. The McFadden Act of 1927

This act limited the size a bank could grow by forcing banks to stay within the state which they originated in. Other countries like Canada which did not have this regulation fared much better. Compared to the 9,000 banks lost in America not a single Canadian bank went bankrupt.

2. Loans

The average man was unable to pay off his debts, so they simply borrowed more money causing more stress on the banks.

3. Panic

Panic steamed from the crash and forced people to pull their money out of banks. The panic only grew as more banks fell.

This 12 year period lasting from 1929 to 1941 was devastating to most Americans. We would not fully recover until the US entered WWII and started creating new jobs.

For a more detailed description of what caused the great depression here is a very informative video I found.

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