The Financial Consequences Of World War I

1372 words - 6 pages

World War I was a major source of much of what happened in the world for most of the remainder of the century (MCELVAINE). The war radically altered international finance. The United States, for the first time, went from a net debtor nation into the world’s largest creditor (MCELVAINE). In 1918, after World War I, many European countries had sweltering debt (“Great”). Their debt became even worse because they owed the United States money. For several years, the United State attempted to recover their unpaid debts by imposing tariffs on European imports (“Great”). The inability to reclaim loans was the very first silent warning for the decline of the US economy. Herbert Hoover, elected in 1929, portrayed the image of a thriving American economy; that was but an illusion. The U.S. trade was flowing steadily. Manufactured goods and raw materials were being exported at an impressive rate. Technology in America was also becoming increasingly advanced. The main causes of the Great Depression had less to do with the stock market crash, and more to do with selfishness and purchasing stocks on margin. The weak system had put on quite an impressive and deceiving mask—that mask suddenly dissolved. Swiftly smothering the economy was a depression, a depression that slaughtered the American Dream.
The weakness of Europe was an advantage of American businesses, leading them to make massive investments in Europe (“Great”). The investments eventually led to the international financial structure being almost entirely dependent on U.S. businesses and banks (Mcelvaine).The prosperous 20s soon halted to end due to the uneven distribution of income across the nation. Wages increased only slowly, leading to an increase in the use of credit (“Great”).
The U.S. agriculture sector never recovered from the recession of 1921-22, leading to a steady decline of crop prices (“Great”). A fatal fault was the fact that U.S. industries continued to expand despite the indications of overproduction (“Great”).
During the late 20’s U.S. stock market began to show the unstable nature of the economy. In 1927-1929, there was rigorous buying and selling in the stock market (“Great”). Even though the buying and selling looked beneficial, investors were not interested in long-term investments and only pursued a quick profit as stock prices continued to rise (“Great”). The only reason that the stock prices rose was because investors didn’t have the full money to purchase stocks, leading them to purchase stocks with credit (“Great”).
When the investors purchased stock with credit, the stock prices rose up far beyond any real value in the business the stocks represented (“Great”). By October 24th & 29th 1929, the stock market finally collapsed as the stock prices dropped substantially (“Great”). This signaled the very beginning of an economic tragedy that would affect the global economy for years to come.
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