The great USA depression that occurred in October 1929 led to loss of people’s life savings, confidence in the market, minimized spending and low production of business firms. Among the factors that caused the depression include debt deflation, wealth inequality, ill-regulated markets, and structure of the banks, gold standard, population dynamics, and collapse of international trade. Some of the consequences include unemployment, low profits, poverty, deflation, lost chances for economic growth and personal development chances.
To start with, one of the main causes of depression in the USA is debt deflation. Economists say that the depression resulted from debt deflation and over-indebtedness in the region (Dow, 2000). They asserts that the situation was accelerated by distress selling and liquidation of debts; reduced asset price levels; reduced profits, minimized output employment and trade; lack of confidence; reduced nominal interest rates; and money hoarding and decline in business net values. The above events led to facilitated over-indebtedness and debt deflation in USA; hence, the great depression.
The second causal factor of the USA’S great depression is inequalities in wealth of the citizens. Since the economy was producing more than the citizens could consume due to inadequate money, the market went into a serious depression. Instead of going to the customer acquisitions, the surplus production was taken in as profits (Hybel, 2001). Therefore, the worldwide over-investment in bigger industries than the independent businesses resulted in the great depression. In order to solve this, there was need for the government to make equal distribution of the purchasing power, uphold industrial foundation and re-inflate the wages and the prices.
The failure of the financial institutions also facilitated the occurrence of the great depression. Since most of these banks were situated in the rural areas where farming took place, farmers faced a lot of challenges. The huge debts, high prices of goods, high rates interest rates of loans borrowed from the banks, all contribute to the economic depression. In addition, the farmers’ land was highly mortgaged yet their crops sold at a low price so that the farmers could not repay their loans (Vile, 2007). Consequently, the banks failed to maintain their status since the clients were already facing a lot of challenges.
Additionally, the great depression in the USA was caused by the gold standard just after the World War I. At this point the European nations ignored the gold standards because of the serious effects of the war. As a result, the economy experienced a lot of inflation since it was not in line with controlling and other compulsory reserves (Hybel, 2001). Germany had to pay a lot of compensations to France; therefore, it had to borrow money from the USA. In order to solve the problem of inflation, the countries had to reduce the amount of money in circulation.