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. The collapse of the international trade also triggered the economic depression in the states. After the World War I, the European nations had a lot of debts in the American banks because of their demolished reserves (Aldarondo, 2007).
Instead of settling debts, the US banks lent more money to the European nations; hence, piling up debts. This, in turn, weakened the US economy that also affected the international market. Without any foreign exchange income, the US had no money to pay their loans; hence, they defaulted. The great depression was also caused by population dynamics in the United States. The decrease in the population rates led to the reduced demand for housing and mortgages. The decline in the population rate resulted from deaths in the World War I, few families, developing secularism and the 1918 flu (Dow, 2000).
For this reason, the banks experienced reduced borrowing form the nation; hence reduced money in their reserves. This affected the economy negatively; hence, the great depression. The USA economic depression had detrimental consequences in the nation at large. One of the negative effects is unemployment that resulted in poverty among the people. By 1933, many Americans were already jobless as they went round the country in search of food, shelter and work (Aldarondo, 2007).
This happened because many institutions and business firms closed down due to depression. Due to lack of jobs, the people’s living standards deteriorated as they had to put with the hard economic time. In addition, the depression affected the amount of profits in the businesses. This is because the owners could not access the bank loans as the banks had raised the interest rates. The investors also backed out as the conditions in the country were not favorable. This, in turn, affected the nation’s economic growth in that it greatly slowed down (Vile, 2007).
Also, depression negatively affected the people’s chances for personal advancement as they could not get the banks’ support. Besides, it led to deflation since little money was in circulation. Lastly, the USA depression also had negative impact on the country’s politics, culture and social life. The country became a creditor to the European nations since it had lent them money. Moreover, they were increased migrations out of the country as people searched for basic needs and job. It also affected the social set-up as marriages were delayed by the World War I (Dow, 2000).
In conclusion, the great depression in the USA was a severe downturn in the country’s history. Its causes include debt deflation, collapse of international markets, failure of the banks, population changes and the gold standard. Consequently, it had detrimental effects on the people, such, unemployment, deflation, poverty, low profits slowed economic growth and personal enhancement. Therefore, there is need to develop strategies that will help curb the recurrence of depression in USA.
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