What Caused The Great Depression?
The great depression was a terrible time in human history that makes us all sit back and wonder, what caused the great depression. While there were a lot of factors that lead to it here are a couple big ones.
First of all, people where buying stocks on margin. In the 20s you could buy a stock with 10% down, and people where taking advantage of it. All this despite the fact that, stocks were already too expensive.
When stocks started to fall people panicked because they were overleveraged and as a result they sold their shares of stock causing the market to go down lower.
Another thing that caused the great depression to turn into the disaster that it was was the gold standard. People complain about how money is not backed by anything but there is a reason for it.
When the economy collapsed in the 1930s the government had to spend money to fix it. The problem was that there was no money and the government couldn’t print more because it was backed by gold, so the dollar would just adjust to compensate for the limited supply of gold.
As a result all governments of the world were faced with a big problem that needed money to be fixed, yet no money to fix it. Since the governments could not do much to help out the economy it collapsed and fell deeper into the abyss.
In fact one of the facts about the great depression was that the countries that left the gold standard earlier like Great Britain and Sweden were able to recover at a much faster rate than companies that remained on the gold standard.
Finally another reason why the world was affected so much by the great depression was that the American economy played such a major role in the world. European countries needed American loans to help them rebuild after WW1. Countries like Canada and Australia where just so dependent on their exports that once Europe and America collapsed so did they and many other countries around the world.
It was a terrible economic time in history, but the world did recover and we are off to bigger and better things today.