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Most people attribute the Great Depression to the stock market crash of 1929. While the crash was probably the event that set a cause and effect chain in motion, it was the economic conditions leading up to the crash that made the depression possible.
In the Twenties, people and companies, and even countries in some cases, overextended themselves with readily available credit. Borrowing to buy things like automobiles (still a new industry in those days) and stocks, people were not in a position to be able to pay their obligations if they lost their jobs or if something happened to their money. Once the market crashed, banks began to fail because people, fearing losing their savings, rushed to withdraw funds, which led to all sorts of additional economic problems. Some people lost their money in the stock market, some to bank failures, and then, when businesses began to fail, people began losing their jobs. All of this led to a tightening of available credit, which restricted growth.
These conditions depressed the economy, weakened demand, and hurt business further. Then in the early 30’s, the Dust Bowl hit and destroyed much of the farming business in the Midwest. This led to further job loss and economic weakness.
With unemployment high (25%) and credit hard to get, it was difficult for the economy to right itself. It took over a decade and the advent of World War II to get the economy back on its feet.
The effects were similar throughout the world.
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