Week 10: The Great Depression

World at War

Existing Hidden Economic Problems

Wages falling behind productivity
- In USA, 5% of population owns 33% of wealth
Gap between goods produced and discretionary income.
Tariffs limiting international trade

Financial Crises before 1929

Business Cycles.
- Things grow and then contract.
Central banks not proactive in managing money supply.
Volatile economy.
- 1920-21 recession.
  - 11% unemployment.
  - Hyperinflation in Germany.

USA Role in Global economy

Allies owe USA $10.35 billion ($184.33 billion in 2002).
Weimar Republic owes $6.6 billion in reparations.
Dawes Plan (1924)
- Reduces and reschedule payments
- USA loans to Germany to pay reparations.
- Germany pays UK and France.
- UK and France pay USA.
USA is the world’s banker.

Stock Market Crass of 1929

Oct 24 - Oct. 29, 1929: stock market ↓ 50%.
Typical crisis:
- 1901, 1907, 1914, 1920-21, 1923, 1926.
But this time it was different.
- Bigger crash.
- More integrated global economy.

USA Depression goes Global

USA raises tariffs by 20% in 1930 (Smoot-Hawley Tariff Act).
Other countries retaliate.
Remember the Dawes Plan cycle?
Global trade ↓ by 66% between 1929 and 1934.
Countries abandon Gold Standard to devalue currency.
Global GDP ↓ by 15% between 1929 and 1934.