Aftermath of World World 1
At the end of World War 1, the worlds economy was drained. In Britain, its market fleets were destroyed by the Germans which made exporting goods difficult. In France and Italy the growth of political parties made effective government difficult. Germany had faced billions of dollars of debt in reparations. However in the United States, its economy stayed strong.
German War Reparations
With the end of the war someone needed to be blamed. With that, victorious western powers imposed a series of harsh treaties upon the defeated nations. One of those nations being Germany which ultimately led to signing of the Treaty of Versailles.
The most important was article 231, known as the "War Guilt Clause," which forced Germany to accept complete responsibility for causing World War I. Germany was liable for all material damages and had to pay billions of dollars.
Inflation, unemployment, Overproduction, and underconsumption
In Germany inflation sky rocketed. To pay for the reparations, Germany printed more and more money. The value of paper money dropped rapidly and the cost for basic supplies reached unbelievable heights.
In the United States, uneven distribution of wealth, overproduction by business and agriculture played a big role in the rapid increase of unemployment. With the overproduction of goods, businesses lessened their production which then led to people losing their jobs. With people losing their jobs, even more supplies were not being bought.
Stock market crash
New York City's Wall Street was the financial capital of the world. Banks and investment companies lined the sidewalks.
It wasn't until September 1929, that stock prices became high and investors started selling their stocks hoping the prices were to go down. Everyone wanted to sell their stocks but nobody wanted to buy them which led the the Stock Market crashing.
With the crash of the Stock Market, people began to panic. Americans raced to banks hoping to withdraw money. Banks struggled to take in deposits and loan out money to farmers and businesses. With less money in circulation, the purchasing power of consumers was sharply reduced. In all, 9,000 banks failed during the decade of the 30's.
Effects in the US
The effects in the United States were devastating. Unemployment rates raised to 25 percent. Housing prices dropped 30 percent, and global trade collapsed by 60 percent, and prices fell 10 percent. Half of the nation's banks failed and the stock market lost 90 percent of its value.
Effects in Germany
Germany in the 1920's remained politically and economically unstable and the Weimar democracy could not withstand the effects of the Great Depression. American banks immediately withdrew the loans they had made to Germany. Businesses closed, unemployment rose and inflation was at its all time high.
Effects in one other European country
By 1935, one million French workers were unemployed. The economic crisis contributed to political instability and five coalition governments formed and fell. So in 1936, moderates, Socialists, and Communists formed a coalition which allowed them to pass a series of reforms to help the workers, but unfortunately, price increases quickly offset wage gains and unemployment still remained high.
The New Deal
Roosevelt immediately began a program of government reform that he called the New Deal. Large public works projects helped to provide jobs for the unemployed. New government agencies gave financial help to businesses and farms and large amounts of public money were spent on welfare and relief programs.