During the great depression, why was the whole world suddenly in ruin?

Question

Although some countries may have gotten out of the depression earlier and thus had a comparitive advantage over another country as Germany somewhat did, but why did all countries in the world suffer. Wouldn't it be logical that the money go somewhere instead of leave everyone's pockets at the same time?

Answer 1

When the stock market collapsed in 1929, the whole world was affected because most of the modern democracies currencies were linked to the U.S dollar, it had a domino affect on all stock markets. As shareholders panicked and sold their stocks, the market collapsed - and with it the value of the dollar.

But the real damage was done when the value of the dollar collapsed - money itself became worthless.

To prop up the value of the dollar, governments did not print more money - they went and asked smaller countries to repay outstanding loans. For growing countries as Australia, we were asked to repay outstanding loans to Britain when an economic anaylst from Britain, Niemoller, advised Australia that the Best way to beat the Depression was to pay our debts.

Governments were able to restore confidence in the dollar and investment by spending in re-building. Unfortunately smaller countries such as Weimer Germany, felt the devasting affects of Hyper inflation. The depression played a great part in the election of Hitler in 1933.

Answer 2

The way money works is that we agree on its value. If we suddenly agree that it has less value, it will purchase less. That's called a devaluation of currency.

What happened in the depression of the 1930's was that there were massive business failures as a result of speculation about the future value of commodities. When the future value of those commodities was no longer related to the commodities intrinsic worth, the entire economic structure fell like a house of cards.

No businesses meant no jobs, No jobs meant no way to pay bills or buy groceries, and that meant that people migrated to where they thought they might get jobs and money.

The only thing that pulled the US out of the depression with any kind of speed was massive central government intervention. When the US entered WW2 in 1942, employment boomed.

There are measures in place to make sure we don't see the kid of economic collapse of 70-80- years ago. But the underlying dangers are still present.

Answer 3

Although the crash of the stock market and massive bank failures kicked off the depression, the 'Dust Bowl' kept it going. In the 1930's, the central United States suffered a severe drought which of course, killed crops, but also, due to massive over grazing and poor farming practices, left topsoil exposed with nothing to hold it. When strong winds came along, they took the soil away leaving land useless for farming. The inability of the breadbasket of the country to supply food combined with the lack of available cash is what made the depression so much worse in the United States.

Answer 4

I'm pretty sure it was the confusion about the exchange rates and stocks that messed everyone up. I agree though, it's strange that there would be such chaos.