How did the economy get into the worst crisis of the century?

When the stock market crashed in 1929, no one suspected that it would be the beginning of the worst economic collapse in modern history. The Great Depression later became a warning that the entire world would never forget. This article will show you what happened, why it happened, and how humanity came out of it.

Black Tuesday: When Everything Collapsed

October 1929 is recorded in history as the month when the dreams of American investors turned into nightmares. After a decade of unchecked speculation on the stock markets, where people invested money they essentially did not have, the relentless reality set in. The stock prices, which had been artificially inflated in the 1920s, began to fall. As panic spread, it created a domino effect that could not be stopped.

Millions of Americans who thought they were rich found themselves almost with nothing overnight. These investors, many of whom were ordinary people who borrowed money to invest in stocks in hopes of quick profits, were now in debt with no assets to cover it.

Banking System in Collapse

But that wasn't all. When people lost everything, suddenly they wanted to access their money that they had in banks. Horrified crowds of people were pushing in front of the banks to withdraw their deposits – and the banks simply did not have enough cash to return at least something to everyone.

A peculiar situation has arisen across the United States. When one bank went bankrupt, its demise triggered panic in neighboring towns, which toppled other financial institutions. At the moment when lending practically came to a halt, every entrepreneur and investor began to pull their hair out. Without loans, it was impossible to continue doing business.

Global Gap: How the Crisis Spread to the World

Europe, which was still recovering from the First World War, was particularly vulnerable. When American traders stopped buying European goods, the economies in Germany, Britain, and elsewhere suddenly faced a collapse in demand. As a long-term clarification of the situation: governments, trying to protect their domestic industries, imposed high tariffs. In the USA, this was called the Smooth-Hawley Tariff Act of 1930.

The problem is that when the USA raised tariffs, other countries did the same. Global trade has dramatically shrunk. Countries that relied on exports have found themselves in serious trouble.

Her face: Unemployment and poverty at an unprecedented level

When businesses went bankrupt and production declined, the first victims were the workers. In some parts of the world, unemployment reached as high as 25 percent. Just imagine that – a quarter of the population without jobs, without income, without hope.

Cities filled with homeless people. Long lines of people waited for sourdough bread at charitable kitchens. Families lived in shanties on the outskirts of towns – these settlements were humorously called “Hoovervilles” ( after President Hoover, who was responsible for the crisis policy ).

Those who still had jobs were willing to give up anything – any working conditions, any salary – just to keep their position. The physical and mental health of billions of people was deteriorating.

How It Started to Change: The Change in the Way Governments Managed the Economy

People started asking for change. In the USA, Franklin D. Roosevelt came onto the scene with the promise of the “New Deal” – an ambitious plan that aimed to do everything – create jobs through public projects, stabilize the banking sector with regulations, and provide social security for the elderly and unemployed.

Although some criticized the extent of these interventions, their role was crucial. For the first time, governments decided to actively intervene in the economy to save it from collapse.

World War II: Paradoxical Solution

When World War II broke out, governments began pumping billions into the military industry. Factory halls that had long been closed were reopening. Workers who could and thus performed physical labor now had a serious need to do so again. The production of industrial output rose dramatically, and with it, jobs.

It's not a joke – the war paradoxically helped the economy to come out of depression. But naturally, no one likes to mention this when talking about recovery resources.

Permanent Lesson: What We Learned

The Great Depression had a lasting impact on how governments and financial institutions operate today. Deposit insurance was introduced to protect savers from losing all their money. Rules for the stock market were tightened. Social security programs became the norm in developed countries.

All these measures were born from the painful lessons of that time. Policymakers realized that reckless capitalism without regulation can lead to disaster. Today, as we face economic challenges, these lessons from the Great Depression still resonate in the political decisions of world leaders and economists.

The cycle of economic crises does not repeat in exactly the same way, but the risks remain. The Great Depression teaches us how vulnerable the global economy is, and how important it is to maintain regulations and safety nets to protect the economy and the people within it.