Do you know what is an economic downturn which is also known as the economic recession? According to Wikipedia, economic recession is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending. These recessions happen now and then whereas the countries can predict them beforehand and also make some precautions to overcome the crisis. But the Great Depression was the greatest and longest economic recession in modern world history which is termed as the most catastrophic economic event of the 20th century.

After the First World War

The First World War led to the expansion of certain industries to meet war time requirements but however at the end of the war the industries had to be abandoned or modified. Huge stocks had to be disposed off and large numbers of workers had to be sacked. the situation was made worse by the political complications and the war also led to a heavy burden of debt on every European country.

US – International Lender

At the end of the first world war, America was in a financially sound position. America being the moneylender to the world it encouraged flow of capital into Europe, which helped the European debtor countries and also had new investments. The war created a new group of indebted nations and transformed the United States, the world’s leading debtor nation in 1914, into the status of leading creditor nation four years later. During the 1920’s the United States assumed the role of leading international lender.

Stock Market Crash

The withdrawal of American capital was aggravated by the US market crash in 1929 with the first huge crash on 24 October 1929. This discouraged the investors and consumers to such an extent that more people began to sell their shares and dispose of their stocks, but there were no buyers. This was followed by the failure of American banks. The financiers were forced to recall their own funds invested abroad. The stoppage of loans to Germany led to failure of two large German banks and The Bank of England also found itself in bankruptcy. The stock market crash portrayed the beginning of the Great Depression, but it was only one factor among many root causes of the Depression.

Effects

The effects of the Depression cascaded across the US economy, millions of people lost their jobs. By 1930 there were 4.3 million unemployed, by 1931 it was 8 million, and in 1932 the number had risen to 12 million. By early 1933, almost 13 million were out of work and the unemployment rate stood at an astonishing 25 percent. Those who managed to retain their jobs often took pay cuts of a third or more. Hitler’s rise to power in Germany was in part by the economic slowdown, and throughout the 1930’s international tensions increased as the global economy declined.

Hence its effects was deep and prolonged, economists and historians call it the Great Depression.

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