TheGreat Depression Term Paper Example | Topics and Well Written Essays - 1500 words

TheGreat Depression - Term Paper Example Many banks and businesses went under as a result, and this instigated the fall in the economy potential, as there was reduced spending, low demand, low production and high unemployment accordingly.2 Even though, the great depression had its origins in America, all the European nations were greatly hit as they were heavily relying on the US for financial loans; the US had emerged as a great credit in the post world war one period. The complex financial relationship between the European economies and the US was inevitably the reason why the great depression could not be contained in the US, but later spread to the rest of the European nations. Nations were thrown into panic mode, most of them adopting restrictive measures, especially concerning foreign trade as mitigation to salvage their local industries.3 Discussions on the great discussion have yielded important information on the delicate financial market relationships, and this is a key area of concern especially in the view of co ntemporary global economic ties. This topic is relevant to global economies as it provides vital lessons that could help mitigate the risks of a future global financial slump.4 This paper will focus on various aspects of the great depression including, but limited to its causes, its effects in America, and the rest of European economies that were hugely indebted to the US at the time. In as much as the great depression was sparked by the great slouch in the New York stock market prices, there were other underlying factors that have been attributed to it. These factors are specifically weaknesses and imbalances that existed in the American financial system, but they had long been ignored due to the rapid economic growth, and the resultant speculative optimism. The onset of the great depression revealed the faulty premises of the American financial system, and its failure of America’s political and financial institutions to manage the economy. Concerning the causes of the great depression, five factors have been top on the list,  the fall in stock Market prices, failure of the banking system, a decline in the purchasing power, the American- Europe economic ties, and famine.5 Prior to fall in stock prices, banks had been lending out large sums of money to businesses and investors, even way beyond their capabilities; this gave rise to debt deflation. After the crash in prices, great losses were incurred by stock investors as the value of stocks had gone down drastically i.e. stocks lost over 90% of their value, and stockholders incurred losses amounting to over 40 billion dollars. Many banks could not recover their loans as many debtors defaulted in payments, and as a result, many people withdrew their deposits. Rapid measures of self-preservation were taken by the surviving banks and this included cutting down on loans, a desperate move that resulted to further limitations to the economy. Bank's restrictive measures  to limit lending, coupled by loss o f jobs and the resultant unemployment led to harsh times in the history of the US economy; there was low output and low demand of products and as such, many businesses suffered insolvency. About 11,000 banking institutions had collapsed by the year 1933, as they could not