Economic Collapse (HIST 1301 History)

THE INTERWAR PERIOD HIST 1301 | History Economic Collapse The postwar boom came to an end and the whole world's economy was driven into collapse when the United States experienced the economic collapse that became known as the Great Depression in 1929. One factor does not generate an economic downturn on its own. However, economic instability that was concealed by the US stock market's rise was one contributing element. It seemed as though every year in the 1920s, the stock market reached new heights. At the time, some of the rise in stock prices and the ensuing assessments of the value of firms made perfect sense. Indeed, businesses were selling more and more things. Washing machines, radios, and electric ovens were all very popular new consumer goods. But by the late 1920s, sheer speculation—that is, the buying and selling of shares based only on wagers that stock prices would rise even higher, even in the absence of larger sales of the underlying products—had taken a toll on the stock market. Stock prices increased as a result of this conjecture, reaching dangerously high levels. In the autumn of 1929, stock prices started to decline precipitously and finally plummeted, leading to bank bankruptcies as banks' stock investments lost value. Because there were no banking laws in existence, anyone who had made deposits at a bank would lose all they had saved. Strangely, since banks only retain a tiny portion of their clients' money in cash in their vaults and invest the remainder, when consumers started to withdraw their savings out of concern that the bank would fail, they frequently unintentionally caused that failure. These bank failures not only harmed bank depositors, but they also made it difficult for many communities to get loans for farms or enterprises, further jeopardising the local economy. Purchasing consumer goods on loan had a role in the Depression. When the Great Depression struck, families facing unemployment directed their leftover funds on maintaining a roof over their heads and food on the table. Due to their credit payment failures, the stores went hungry and were forced to fire additional employees in order to survive. In the meantime, American industry had expanded greatly and was creating consumer products at a never-before-seen pace. But because customers couldn't buy, the economy came to a complete standstill due to the twin issues of overproduction and underconsumption. The uneven distribution of wealth was one factor in this financial disaster. Since most American families (eighty percent) had no savings at all when the Depression started, losing one's work rapidly resulted in starvation and homelessness. An illustration of the isolationist and protectionist measures the American government took in the 1920s is the Smoot-Hawley Tariff Act of 1930. In 1922, a tariff increase of about forty percent had already been implemented. Smoot-Hawley increased tariffs by an additional 20 percent on over 20,000 different types of imports, purportedly to shield American businesses and farmers from outside competition. Other nations imposed hefty tariffs of their own in retaliation on American goods as a result of these outrageous prices. Because of job losses and income shortages, American citizens were unable to afford products, and American firms were unable to recover any of their losses by exporting goods abroad, the country's industrial power was halted. The highest tariff ever implemented by the US government was Smoot-Hawley. It contributed to a 30% decline in global trade by the early 1930s. The way the Great Depression hindered international trade worldwide was one of its main features. The value of all the products and services produced in a nation in a given year, or the gross domestic product (GDP), fell by 15% globally between 1929 and 1932. As commerce fell, many American banks started to recall debts they had provided to other companies and nations, which led to crises elsewhere.