- The immediate trigger of the Great Depression was the stock market crash on October 29, 1929 (Black Tuesday).
- Overspeculation and excessive risk-taking by investors created a bubble in the stock market, led to a rapid decline in stock prices.
2. Bank Failures:
- In the aftermath of the stock market crash, many investors and businesses lost confidence in the banking system.
- This resulted in a wave of bank failures, as depositors rushed to withdraw their money.
- The failure of banks led to a reduction in the money supply and a tightening of credit, which further hurt businesses and consumers.
3. Overproduction and Declining Demand:
- Overproduction of goods had occurred during the 1920s due to rapid industrialization.
- With the economic downturn, demand for goods and services decreased, leading to a surplus and a decline in prices.
4. Deflation:
- Prices of goods and services fell steadily during the Great Depression, leading to deflation.
- This made it harder for businesses to repay debts and led to further contraction in the economy.
5. High Interest Rates:
- To curb the bank failures and economic downturn, the Federal Reserve raised interest rates.
- This, however, made it more difficult for businesses to borrow money and invest.
6. Smoot-Hawley Tariff Act (1930):
- The Smoot-Hawley Tariff Act significantly raised tariffs on imported goods to protect American industries.
- This led to retaliatory tariffs by other countries, resulting in a decline in international trade and a deepening of the global economic crisis.
7. Weak Federal Response:
- Initially, the federal government's response to the economic crisis was inadequate and ineffective.
- President Hoover's policies focused on voluntary measures, such as encouraging businesses and individuals to maintain spending, which proved insufficient.
These factors combined to create a downward spiral in the economy, leading to the prolonged and devastating impact of the Great Depression on the United States and the world.