The crash in 1929?

Question

Is the crash of the stock market in 1929 related to World War 2?

Answer 1

The answer to this question is quite complex. World War I set the 1929 crash and the Great Depression in motion through the gold standard. The lack of resolution to the sources of conflict also set World War II and the Cold War in motion too. We still are feeling echoes of "The War to End All Wars."

They are related but it is because they share causes.

World War I ended mostly because all parties ran out of resources, morale and the collapse of underlying social structures. Germany ran out first due to the sudden influx of Americans who had not yet spent any resources. The Zimmerman Telegram had far reaching impacts that echo down to today. We are in Iraq partly because of WWI. The Baath party is a formal extension of Nazism and was formed as such during WWII.

Following WWI, the world's central bankers and governments tried to put everything back the way it was prior to WWI. They tried to go back to the old social contracts, including the pegging of gold to the pound sterling, the dollar, the mark, and the franc. The problem is that the war destroyed the web of global contracts which held all of this together. Gold reserves had changed substantially with some countries, like the United States having radically more and others with extreme shortfalls.

During the boom following the war, this impact was noted as strains to the economies, but booms cover tremendous amounts of sin. You can be stupid in a boom time and no one will notice.

The United States, just prior to the onset of hostilities in Bosnia, enacted the Federal Reserve Act. It was probably an unfortunate timing. Prior to that, the United States used market forces to regulate the gold supply combined with a Federal requirement that Federal obligations could only be paid in specie. Suffolk Bank in New England was the default equivalent to the Federal Reserve Bank for New England. Other regions did not have such a system. This permitted New England to expand well beyond other regions and to have a far more stable economy.

Due to the banking panic, I believe of 1890, Congress tried to enact nationally what was working in New England voluntarily since the colonial period. Unfortunately, the new Federal Reserve would come into existence without any experience of central banking. Further, the role played by Suffolk would dissolve simultaneously.

World War I was, in a certain sense, the first test of a crisis for the central bank. It mostly did a good job. From the American perspective, the war was very short, though it was already in its fifth year in Europe by the time troops arrived in meaningful numbers in France.

When the war was over, the victorious European powers wanted revenge, wanted money and reparations AND wanted everything put back to the way things were before the war. Of course to put everything back, would have meant to put Germany, Austria and the Ottoman Empire back to the same place they were. It not only created contract distortions, it created extreme imbalances.

Now fast forward ten years to the late 1920's. These contract distortions were causing gold to flow into the United States. Under the gold standard, and under unregulated banking, this should have created very substantial inflation. The Federal Reserve began quarantining the gold so it did not affect the economy. It blocked the inflation by keeping the national supply of gold stable.

Under the pre-WWI system, this should have driven up US prices, effectively altered the American price of gold and caused gold exports to Europe. By locking the gold up, the United States was shrinking the global supply of money. By doing this, other nations could not pay their bills because there was no money to pay it with, the US had it in the vaults of the New York Fed.

Because of excess reserves, the world actually went on for a very long time before the Great Contraction hit. In August, prior to the crash, mistaking the requests for gold as an economy heating up, it raised interest rates to contract the economy. It reduced the money supply by about 3%. Investment in capital fell by an equal amount, however, since new investment equaled 4% of GDP, that is a 75% reduction in national investment in the future.

The New York Fed, during the crash, immediately came to the rescue. It arranged a $1,000,000,000 bail out of the brokerage system the same day as the crash started and bought, if memory serves me $300,000,000 in US Treasury obligations for its own account to keep New York liquid.

This triggered a huge political reaction within the Federal Reserve System. The Board of Governors had just approved a ceiling of $25,000,000 in total holdings system wide. This was viewed as insubordination by the NY Fed. The NY Fed pointed out that it was for its own accounts and the System lacked authority over its accounts.

The upshot was that the System turned a stock market collapse, and the larger one a few years later, into a banking crisis. It shut off, for all practical purposes, new loans in the economy. This banking crisis spread world wide through the gold standard. Remember, the US has the gold and it is shrinking the available just as it is most needed everywhere.

This lead, ultimately, to the collapse of the Hoover Administration and the Papin government in Germany. Hitler and Roosevelt are the direct result of the cascading effect the gold standard had world wide.

Of course, without a resolution to the pre-WWI causes of the war, and their ultimate exacerbation following the war, it is likely a second European war would occur. The Crash, however, may well be a proximate cause to the way that war occurred. Hitler, probably would not have come to power, had a new and inexperienced Federal Reserve not taken the 1929 crash and turned it into mass unemployment, mass starvation in some places, the destruction of the housing market, and inflation in Germany.

Answer 2

For the most part the 1929 crash was the start of the great depression. It is not directly related to World War II. The 1929 crash occurred in late October 1929, while World War II began in 1939 (and lasted until 1945).

The Great Depression did cause people to change their faith in government, and helped people to make an easier choice of putting Mussolini and Hitler into power, which let to WW II.

Answer 3

World war 2 happened about 10 tears after the crash.
Hitler had an ugly message and even though he was a charismatic speaker I think because the people were struggling so bad during the depression they listened to and accepted him and his message when in better times there is no way they would have.

Answer 4

It played a role but was not *the* cause. The collapse of the world economy during the "dirty 30s" exacerbated problems in the German economy, which was going through incredible hyperinflation and joblessness. This economic misery made it possible for Hitler to gain a following by promising an answer for Germany's economic woes. Hitler attained power and started his campaign to militarize Germany and prepare for war.

There were, however, many other factors that led to war.

Answer 5

After WW ! France and G B put a tremendous stain on Germany to re-pay them for the war The U Sof A took a different road We didn't ask for money Germany pulled out of the depression with a hatred of these country as they felt they did it too them Than we had WW2 There are some who blame these two countries for W W 2 Because of the pressure they put on Germany! And I'm one of them!

Answer 6

yes WWII pulled the US out of the depression
and what most people will not believe is that a war will get make your economy better

Answer 7

Of course, poverty in Germany caused that NSDAP (nazis) win elections

Answer 8

WWII is what brought about economic recovery.
Otherwise, no.

Answer 9

yes,wow i'm impressed.how did u know that smart dude