Great Depression Effect on Economy

The Great Depression of 1929-33 was the most severe economic crisis of modern times. Millions of people lost their jobs, and many farmers and businesses were bankrupted. Industrialized nations were all affected in one way or another. In Germany and the United States industrial output fell by about 50 %, and between 25 and 33% of the industrial labor force was unemployed.

The US economy had experienced rapid economic growth and financial excess in the late 1920s, and initially the economic downturn was seen as simply part of the “boom-bust-boom cycle.” Unexpectedly, however, the economy continued to fall for three and a half years, by which time half of the population was in desperate circumstances. It also became clear that there had been serious over-production in agriculture, leading to falling prices and a rising debt among farmers. At the same time there was a major banking crisis, including the "Wall Street Crash" in October 1929. The situation was aggravated by serious policy mistakes of the Federal Reserve Board, which led to a fall in money supply and further contraction of the economy.

The economic situation in Germany was made worse by the large debt with which the country had been burdened following World War I. Germany had been forced to borrow heavily in order to pay "reparations" to the victorious European powers, which the Treaty of Versailles (demanded, and also to pay for industrial reconstruction. When the American economy fell into depression, US banks recalled their loans, causing the German banking system to collapse.