Coming of Great Depression

The Great Depression itself perhaps could not have been seen comingbut the crash that preceded certainly could have been seen coming, as there were several warning signs beneath the surface of the good times and Roaring Twenties. First off, the economic boom of the 1920s post-war period was partly driven by excessive borrowing and speculation. Interest rates were low and credit was easy to come by. Easy credit tends to lead to over-leveraged accounts. Many people and businesses were invested heavily in the stock market using margin loans, which helped to blow a bubble that was simply not sustainable without an influx of new money. This was all worsened by agricultural overproduction, which led to falling crop prices that put farmers into a bind, especially if they were already in debt. Income inequality was also a problem, with wealth concentrated in just a small percentage of people in the US, while many other Americans lived in poverty. The set-up was essentially one just waiting to be knocked down by the first strong wind.

Some critics warned of a possible market crash due to overvaluation and speculative excesses. However, these criticisms tended to be dismissed as overly pessimistic by people who believed the good times could last forever. But as soon as credit began to tighten and smart money began selling, the stock market crash of 1929 commenced, and this opened the door for an economic downturn.

The Dust Bowl did not help matters at a time when the combustion engine was moving workers out of the fields already. Lack of employment was a big problem following the Crash. However, the depression also opened the door for a new round of socialist policies to be put into place, which did little to inspire enthusiasm in markets and only made the bounce-back that much slower. Meanwhile, investment was pouring into Germany, whose policies appeared bold by comparison to those in the US.