The Great Depression

• In 1919, the USA was the most powerful industrial country and biggest lender, with Britain and France indebted to the USA during the war
• Britain and France needed German reparations to service their debts.
• Germany relied on American credits and markets
• In 1928, US banks began withdrawing funds from Europe
• This dependency proved fatal, triggering a global economic collapse

Agricultural Crisis and Decline in Raw Material Prices

• Overproduction leads to problems in agriculture
• Food prices plummet
• Farmers declare bankruptcy
• Insolvency leads to reduced consumption
• Technological progress and labor savings in Europe and the USA lowers raw materials prices
• Oil increasingly replaces coal
• Exporters of raw materials and food like Malaysia (rubber), Chile (nitrates), and Argentina (beef) lose traditional markets.
• The Wall Street crash on October 29, 1929, plunges the world into the Great Depression

Spread and Manifestations of the Crisis

• The global economy showed significant growth in the mid-1920s after a period of slow recovery from World War I.
• This growth was felt most strongly in Germany
• Germany was repaying debts and developing its industry, aided by American investment
• The Depression in the USA led to a rapid end to the German recovery.
• By 1932, unemployment in Germany reached 32%
• Industrial decline reached 50% (compared to 1929)
• Austria's largest bank, "Creditanstalt," declared bankruptcy in May 1931
• Creditanstalt financed two-thirds of the country's production and controlled 70% of its banking assets.
• The German "Reichsbank" lost the equivalent of two billion dollars in gold and currency in June and July 1931
• This was caused by the panic that seized depositors
• Despite President Hoover's one-year moratorium on reparations payments, Germany and Austria failed to recover
• The failures dragged down Great Britain (14% decline) and France (29% fall)
• The crisis led to lasting political instability and the rise of totalitarian ideologies in Germany

Protectionism and Abandonment of the Gold Standard

• On June 17, 1930, the US Congress passed the Smoot-Hawley Tariff Act, introducing customs tariffs on foreign goods
• It aimed to protect American industrialists and farmers
• The Smoot-Hawley Tariff Act devastated global trade, and, as a result, the global economy

Vocabulary

• Creditor: A person who lends money that must be payed back with interest
• Bankruptcy: Inability to pay debts
• Moratorium: Temporary suspension of payments under a contract

US as Financial Center

• New York became the financial center.
• The Dawes Plan, the Locarno Treaties, and the return to the gold standard signaled solid recovery for the world economy in the 1920's
• The growing consumer society in the USA and Japanese advancements were signs of solid global economy
• Negative trends existed in world trade
• US imports from Europe were limited due to overproduction
• British and German positions were weak in international markets
• Western Europe relied on Eastern Europe for trade
• Economic position within the USSR were weak