What economic factors and conditions converged in the late 1920s to plunge the nation into the Great Depression?

Sagot :

world war 1 was the biggest factor and the government putting most of their money into the military.

In 1925, the world economy was fairly balanced: production had returned to the level of before the First World War, the price of raw materials seemed stabilized and countries that were going through a period of high conjuncture were numerous. However, it was not a return to the belle époque. A number of traditional equilibria were altered: production and welfare progressed dramatically in some parts (United States, Japan), while in others (particularly in the United Kingdom), pre-war prosperity was lost, The population was overwhelmed by unemployment and endemic crises.

At the same time, Americans complicated the position of Europeans in a unique way. The international debt could only be paid with gold or merchandise, and the Americans stopped their imports from Europe with the new customs duties, increasingly higher, while using their superiority to impose their exports to Europe.

On the other hand, the United States had the largest gold reserves in the world and, to maintain the gold standard, had to grant large loans to Europe. Such was the origin of the Dawes and Young plans.

In 1924, the US economy lived in the height of prosperity, and the European war increased it: for three successive years, the United States was the provider of an almost unlimited market, while the European powers annihilated each other. The industrial capacity of the United States had also increased considerably, and its agriculture was progressing at the same rate.

Since 1925, the activity of the New York Stock Exchange had evolved as vertiginously as the industrial production of the country. The stock price rose regularly from year to year, and there were many Americans who found in the speculation of the stock market the source of a quick fortune: the fever of trading on the stock market tempted all strata of the population in an irresistible way , both rentiers and retirees and apprentices, who ignored everything related to the industry, the economy and the stock market. Everyone considered that the economy of the country was heading towards unsuspected levels, and everyone was convinced that the "best actions" could be achieved with very little money, thinking that he should take advantage of that good luck before it could be finished.

The continued demand made the shares rise to incredible heights, and soon the stock price was pure speculation, which had nothing in common with the authentic solvency of the company.

While it was only for the average citizen to invest their economies, the speculation continued within certain more or less reasonable limits, but time passed and the Americans began to operate in the stock market with borrowed money.

An action of a hundred dollars nominal could be obtained only by ten, while the rest, called "surplus" -ie, ninety dollars-, was paid on credit. If the stock continued to rise, everything went perfectly: a 10 percent rise, that is, from 100 to 110 dollars, provided the shareholder with a net profit of 100 percent on the 10 dollars that he had actually disbursed. On the other hand, if the stock fell by 5 or 10 percent, the stock broker demanded a new cash payment, and if the client could not afford it, he was forced to sell at a loss, in order to cover himself. him and cover other possible creditors.

Among the small speculators-tens of thousands of citizens-there were very few who possessed reserves of appreciable liquidity.

The crisis originated in the United States after the stock market crash of Wall Street in 1929 (known as Black Tuesday, although five days earlier, on 24 October, as had occurred on Black Thursday), and quickly extended to almost every country in the world.