Warning signs appear
By the middle of 1929, consumer spending became less, the new construction was slowing down and the automobile sales were coming to an end. People borrowed billions of dollars to buy stock on margin and that was a very big problem, as more money was flowing in the country. (Buying on margin is a method by which investor put up only a portion of the purchase price for stock shares and borrow the remainder from their brokers.) Even when the prices were high, the Americans kept on investing on stock.
The Federal Reserve Bank may have helped with the disaster of economic depression as it has inflated money supply during 1920’s. Then after the Federal Reserve was aware it ...view middle of the document...
But huge amount of money that helped came from borrowing from other nations, and that created a huge debt. Many of the governments who were involved ended up printing extra money to meet their needs. This printing of extra money supply resulted in high inflation after war.
Many people had to go for military service, which lead many businesses to close as there were no employees available. Other people shifted to go work for the production of military products, like guns, booms, etc. Global agricultural markets expanded greatly to meet war time demand. On the post war era, Europe faced new competition in many export markets. Many soldiers returned from war could not find jobs again.
Past to World War 1 many countries were using the gold standard – that is, they set the value of their national currencies at a certain weight of gold. Under this standard, the rates at which one currency could be exchanged for another were fixed by their values in gold. But during the war, many governments abandoned these rates to help finance war debts.
After war, many governments returned the gold standard to provide the price stability and halt inflation. But this, hurt many nations that seen the prices rising sharply after war. This led to governments increasing circulation in their countries.
The American International Trade was affected and the other countries which America is trading with were affected, this caused economic weakness. The United State of America had emerged from the First World War as a creditor nation. America borrowed other countries money to help with the First World War, and these countries owed America billions of dollars. The nations who borrowed money from America were obliged to pay what they owe America. Those debtor nations continued to buy American products only by selling goods in the United State of America.
This was prevented by high tariffs however. It allowed and happened that foreigners kept on borrowing money in the United States. When foreigners could not repay the money they borrowed in the United States, this really hurt the investors in the United State. After the beginning of the stock market sliding, there was a huge reduction of the flow of dollars abroad. The foreign markets starts to dry up and that caused the American factories to shut down. As there were no people buying in America, this forced many American factories and firms had to close down.
On October the 29th the stock market began to sink again with another big sell-off. More than sixteen million of stock shares were sold that day. The stock prices were steadily moved downward as the stock prices were not going to be regained at any time soon. The years went by, maybe it has been more than two years which the market was drifting lower and lower.
Prosperity comes to an end
As seen, the first stage of the disastrous Great Depression is the stock market “crash”. The resources of the millions of Americans were wiped off as the stock was losing. Consumers as...