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Prosperity to Poverty: A Look Back at The Great Depression

Welcome back to the fascinating world of financial history.

If we asked you, “What was the Great Depression?”, how would you answer? 

Perhaps you’d recall it as a significant economic downturn, or maybe remember a key date – 1929. But the reality is, understanding the Great Depression is about much more than historical facts and dates. It’s about the lessons we can draw from it today, to build a resilient financial future for ourselves.

So, we’d like to journey back to the late 1920s and early 1930s with you, to explore this impactful period in global economic history.

Lead Up and Causes

To truly appreciate how the Great Depression started, we need to rewind to the era of prosperity and optimism that was the Roaring Twenties. Picture it: the U.S. economy was booming, and the stock market became the nation’s unofficial symbol of wealth. However, this optimism spurred a dangerous trend – speculative investing, or betting on the future value of stocks. Much of this speculation was done on credit, creating a precarious bubble ready to burst.

Then came the fateful year – 1929. Confidence in the market began to waver, triggering a wave of sell-offs. The stock market, much like a house of cards, collapsed. This event, commonly known as the Stock Market Crash of 1929, marked the beginning of the Great Depression. But it wasn’t just the crash that pushed the global economy into depression. It was also the inadequate response from the authorities.

During this time, monetary and fiscal policies were ill-equipped to handle the unfolding crisis. Rather than infusing the economy with necessary liquidity, the Federal Reserve tightened the monetary supply. Fiscal austerity measures further deepened the recession, turning it into a prolonged depression. The government’s approach to handling the crisis, in hindsight, was a recipe for disaster.
In this narrative, we start to see the causes of the Great Depression taking shape. It wasn’t a single event but a series of missteps, from unregulated speculation to ill-judged policy responses, which paved the way for the darkest economic period of the 20th century. As we look deeper into this crisis, we will uncover more lessons that hold significant relevance even today. But for now, let’s move on to a concise timeline of events during the Great Depression and examine what unfolded after the crash.

The Great Depression: A Snapshot of Events

To get a true understanding of what caused the 2008 financial crisis you have to piece together, in chronological order, some major key causes. Luckily, we’ve done it already:

October 24, 1929 (Black Thursday):

The Stock Market Crash begins, marking the start of the Great Depression.

Early 1930s:

The bubble bursts. The housing market started to fall, leading to defaults on mortgages. This left many banks with worthless MBS and a severe lack of liquidity.


Widespread bank failures across the United States.


Unemployment peaks at around 25% in the U.S.


President Franklin D. Roosevelt implements the "New Deal" policies.


The onset of World War II stimulates economic recovery.

Imagine waking up one day to find your life savings have evaporated. The prosperity and financial security you’d once enjoyed are gone, replaced by an enveloping sense of panic. This was the reality for many in the late 1920s and 1930s, as the Great Depression unfolded.
The Stock Market Crash of 1929 was just the beginning. The years that followed saw the US and subsequently the world, plunge into an economic abyss. Unemployment soared, reaching a staggering 25% in the US. Trade wars erupted, with countries raising tariffs in a desperate bid to protect their industries, only to further stifle global trade.

To put it in perspective, imagine you owned a small bakery. You rely on imported flour to make your bread, but suddenly, the price of imported flour skyrockets due to increased tariffs. You’re forced to raise the prices of your bread, but your customers, also feeling the pinch of the Depression, can no longer afford it. Sales drop, and eventually, you might even have to close your business. This was the kind of domino effect that took place on a global scale during the Great Depression.

What started in 1929 lingered for a decade. Some countries, like the UK and Australia, began to recover by the mid-1930s. However, the US and many other countries did not see significant recovery until the late 1930s and early 1940s. So how long did the Great Depression last? For most countries, it was about a decade of economic hardship. And for some, the effects of the Depression lingered even longer.
The end of the Great Depression came about due to various factors, including economic reform and the onset of World War II, which stimulated economies out of stagnation. But how did the Great Depression end precisely? And could the severity of this crisis have been lessened with better policies and economic understanding? These questions open the door to lessons we can still learn today. As we wade our way through the complex financial cataclysms of the past, we emphasise the importance of learning from history to safeguard our financial future.
Next, let’s see how this dramatic period of history rippled outwards, affecting nations far beyond the borders of the United States.

Global Impact: The Great Depression Beyond Borders

Given our global presence and client base, it’s important to follow the source of events outwards and explore their international impact in order to provide truly valuable insights for readers today. The Great Depression was not contained within the borders of the United States; its damaging effects stretched across oceans, reaching countries worldwide. With the US economy in tatters, global trade drastically declined, and countries tethered to the gold standard found themselves in a ‘straitjacket’ of monetary inflexibility.
Let’s look at Germany, for example. After World War I, Germany was heavily dependent on American loans to repay their war reparations. But with the onset of the Great Depression, these loans dried up. Unemployment soared, poverty increased, and the public’s faith in democratic government waned. This crisis created a fertile ground for the rise of extremist ideologies, setting the stage for World War II.

During the Great Depression, what was Chancellor Brüning nicknamed? Known as the “Hunger Chancellor”, his austerity measures and economic policies only served to deepen the crisis, leading to further public discontent.

We can trace the effects of The Great Depression all the way over to Australia, a country heavily reliant on its export sector. The plummet in global trade left Australia grappling with unemployment rates similar to those in the US, sowing seeds of economic and social discontent.

By piecing together the global impact of the Great Depression, we can start to visualise how interconnected our world truly is. An economic crash in one country can create ripples that can turn into waves of crises in others. It’s a stark reminder that in our increasingly globalised world, we must keep an eye on global financial health, not just our own.

Next, we’ll shift our focus to the lessons we can draw from the Great Depression. More specifically, what insights can you adopt to make better financial decisions in today’s world?

The Great Depression: Lessons for Today

We believe that it’s not enough to merely recount the past. Our mission is to provide you, our readers, with enough information that allows you to use these historical signposts to light your own path forward. The Great Depression, as crushing as it was, provides us with valuable lessons that can guide our financial decisions of today. These include, but are not limited to:

Lesson 1: The importance of sound economic and monetary policy

The role of the Federal Reserve during the Great Depression is a topic of much debate among economists. But there’s a general consensus that policy missteps exacerbated the crisis. For instance, the Fed’s tight monetary policy and its failure to act as a lender of last resort during banking panics worsened the situation. Today, we see central banks playing a more proactive role in mitigating economic downturns and ensuring financial stability. But we, as individuals, can also learn from this. We must remain vigilant about the financial policies shaping our economies and understand how they can impact our investments and personal finances.

Lesson 2: Diversification really is the key

Many people during the 1920s put all their eggs in one basket – the stock market. When the crash came, they lost everything. This underlines the timeless wisdom of diversifying investments – something we advise on regularly. Spreading your investments across different asset classes can help mitigate the risks of market volatility.

Lesson 3: Be aware of economic indicators

Understanding the state of the economy is crucial in making informed financial decisions. Ignoring economic warning signs – like the speculative bubble of the late 1920s – can lead to financial ruin. Educating ourselves about key economic indicators, such as GDP, unemployment rates, and inflation, can help us make more informed financial decisions.

The Great Depression was a time of enormous hardship, but it’s also a testament to human resilience. Economies recovered, people rebuilt their lives, and the lessons learned have informed economic policies and personal finance strategies for generations.

To avoid repeating history, it's essential to learn from it.

If you found this detailed analysis useful in any way, keep an eye out for Part 2, where we will follow the electronic pulses that sent global shockwaves during the great Energy Crisis in the 1970s.

Until then, keep asking questions, keep learning, and most importantly, keep forging your path to financial literacy.

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