Troubled Interwar

May 1, 2015 | | 2 Comments

Frankforter, A. Daniel, and W. M. Spellman. The West: A Narrative History. 2nd ed. Upper Saddle River, N.J.: Pearson Prentice Hall, 2009. Print.

 1929 Stock Market Crash: Marked a serious downturn in the U.S. economy. Until 1929, Europe was surviving economically in large part due to accessible loans from the U.S. As a result of the crash, the availability of funds from the U.S. dried up, drastically reducing international trade, and therefore grinding local economies to a halt. The 1929 crash was a result of overspeculation, as post-WWI euphoria led investors to overestimate stock and commodity values, and the crash occurred when the bubble finally burst.

Deflation: Due to the factors above, consumer spending was weak. When production capacities finally recovered, an excess of goods were manufactured, but with limited demand, prices fell excessively, creating a poor business and wage environment.

Capitalism/Liquidity: Due to reasons above, the conditions for investment were poor, resulting in money/gold hoarding. Western nations continued to maintain faith that a pure, free-market economy would eventually result in self-correction. But as the mid 1930s approached, there was no sign of the end. Without government intervention, there was insufficient liquidity in the system. Wthout liquidity, there was a lack of personal and business spending needed to drive a capitalistic economy. Socialistic economies, such as Communist Russia and Nazi Germany were unaffected by the Global Depression, but they depended on slave labor and heavy government subsidies, which proved to be unsustainable over the long term.

 Interest Rates: The newly-created U.S. Federal Reserve failed to drop interest rates in order to spur lending and investing in a deflationary environment.


2 Comments so far

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