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The Great Depression occurred after a period of significant economic boom in the late 1920s, particularly in the stock market where the robber-barons were making fortunes off speculations.Compounding this situation was the fact that after World War I, the gold reserves were no longer sufficient to back the money needed to run the world economy.The Federal Reserve (The Fed) wanted to raise the discount rate to slow the boom, but was slow to do so because it meant raising interest rates for businesses and individuals who needed credit.
The definitive description was made by Wesley Clair Mitchell of the University of California.
A cycle Mitchell explained in Business Cycles(1913) was “the process of cumulative change by renewal of [Economic] activity develops into intense prosperity by which the prosperity engenders a crisis, by which crisis turns into depression and by which depression finally leads to….
“The Great Depression of the 1930’s was a worldwide phenomenon composed an infinite number of separate but related events.” The Great Depression was a time of poverty and despair caused by many different events.
Its hard to say what caused this worldwide depression because it’s all based on opinion as opposed to factual data.
There are many contributing factors but not one specific event can be pin pointed for starting the depression.
It is believed that some events contribute more than others-such as the Stock Market Crash of 1929.The imbalances were however, self correcting in which if manufacturers made too much of something, it’s price would fall, profits would disappear, and the producers would cut back on output.In 1932 the American writer, Stuart Chase described cycles as “the spree and hangover of an undisciplined economy.”Economists recognized the depression as a cycle in which there were four cycles; expansion; crisis(or panic); recession (or contraction); and recovery.So many people sold their stocks at a rapid rate that the corporations were unable to pay the shareholders.Speculation arouse months before the crash when Roger Babson made his speech at the annual National Business Conference which he said “…..Cheaper loans encouraged manufactures to invest in new equipment and hire additional workers.The resulting expansion of production caused an upswing of the cycle.In 1929, the Fed did raise the discount rate, but the destructiveness of the excessive stock market speculation had already taken its toll on the US economy.The raising of the discount rate only hastened the inevitable recession.The Stock Market Crash of 1929 was in the majorities opinion, a long and overdue crash that was bound to happen.Prices sky-rocketed so high that when they reached what was believed to be it’s all time high, most people sold their gaining stocks for a profit.