Саusе and Еffесt Еssаy Sample: Grеаt DерrеssiоnUpdated: Nov 25, 2016
CAUSE AND EFFECT ESSAY SAMPLE: GREAT DEPRESSION
The World Great Depression hit the global economy from the late 1920s through the period in 1930s. The depression had enormous market implications: social, economic and political. In order to understand the implications of the global depression crisis, it is imperative to review the crisis causes. This essay reviews on the economic and political causes of the crisis and their subsequent implications.
Economically, the crisis onset was in 1929 characterized by the Wall Street collapse. At this time, the economy purchasing power was failing as money supply decreased. Initially, there was speculation on the eminent Wall Street collapse. At this time, the USA government resulted to financial measures aimed at reducing this influence. In this case, the federal government sought to reduce money supply in the economy through increased interest rates. This aimed at establishing avenues to reduce the increased money supply in the market.
However, this process failed in the long run as the money supply continuously fell (Rosen, 2005). The Federal Reserve Bank, the central bank in America failed to institute mechanisms to reduce this crisis. Consequently, this led to the reduced money supply in the economy resulting in the great depression. Reduced money supply in the market reduced the economy’s ability to purchase products.
Politically, Rosen (2005) stated that the protectionism approach and regulations played a significant role in the emergence and escalation of the global recession crisis. In this regard, global economies such as European markets developed strategies to regulate against increased importation into the markets. This sought to remedy the European market overproduction rates. Similarly, in order to protect the American multinational companies; the government in 1930 instituted the Smoot-Hawley Tariff. The tariff instituted high taxation rates for imports in the Unites States. In this regard, the strategy sought to limit importation into the economy. This was a strategy to mitigate against the increased overproduction in the economy. As such, the government sought to establish the structure through which to reduce on the implications of increased overproduction in the economy. However, although this reduced instances of over production in the economy, it led to reduced international trade. Consequently, this reduced foreign exchange in the global markets. This trend was not only in the USA but also in countries across the global economy.
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Increased tariffs and importation restrictions resulted to reduced international trade. As a result, economies were subjected to decreased foreign exchange. This implicated on the overall currency purchasing powers in the economy as currencies lost their value in the global market. International trade plays a significant role in enhancing increased currency purchasing through the development of balanced and favorable terms of trade. Through the establishment of favorable terms of trade, economies currencies increase their purchasing power enhancing increased spending and consumption levels in an economy.
Reduction on the trade resulted in reduced spending further reducing money supply in the market, thus propagating the global Great Depression crisis. The reduction in the importation and international trade rates resulted in increased unemployment rates. The international trade distribution channels proved increased employment opportunities. Therefore, its collapse led to increased unemployment. Further, the trade allowed for increased government revenues through levied taxes and tariffs. To this effect, its reduction resulted to decreased government revenues. A combination of these factors reduced earnings and government spending in the economy. Consequently, the reduced international trade perpetuated reduced money supply in the global market. The global depression crisis emergence was because of reduced money supply in the market.
An additional cause for the escalation of the global recession crisis was the existence of small and numerous banks. In this regard, the banks lacked enough capital and funds to support their systems. To this effect, the collapse of Wall Street resulted in an increased lack of confidence in the banking industry. As a result, there emerged the cash rush. This was a process through which banking customers sought to withdraw their funds and have them in liquid cash. Due to the advance and defaulted loans, the banking industry was unable to avail all the required funds. This led to the eventual collapse of the banking industry. The banking industry is an imperative component in the global market success and functioning. Therefore, the collapse of the banking industry led to the eventual collapse of the entire global economy as the banking services that enhanced transaction success no longer functions (Rosen, 2005).
Consequently, the global market failed to result in the great recession. Moreover, the global depression crisis emergence can be hedged on the political systems and obligations imposed on nations after World War I. After the war, the USA emerged as a major power due to its late entry into the war. As a result, it advanced loans and funds towards the reconstruction of global nations such as Germany. On the other hand, Germany was burdened with increased loans repayment as damages for the war. This culminated in the banking industry overspending and due to inflation, the banks considerably raised their lending rates leading to global market supply deficiency.
Rosen, E. A. (2005). Roosevelt, the Great Depression, and the economics of recovery. Charlottesville, Va: University of Virginia Press.
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