The Great Depression

After World War I, the economies of many European countries were in ruins. Defeated Germany had to pay reparations (money as compensation for the war) to Britain and France. German money became worthless because of rampant inflation. By 1929, the world economy seemed to be falling apart. Millions of people lost money, jobs and homes.

In the US, where banks had loaned money to other nations for the war, many people had invested savings in stocks. Buying pushed up prices of company shares beyond their real value. In August 1929, share prices started to fall, and people began to panic. They sold their shares, which made prices fall even faster. Many people lost all their savings in the Stock Market Crash. Banks and businesses closed and many people lost their jobs.

A severe drought in the American Midwest made things even worse. In the ‘Dust-Bowl’, where fertile topsoil was worn away by over-farming, the drought and wind turned the fields to dusty deserts. Many farms were abandoned as families headed west to California.

The crisis in the US affected the world, as money loaned overseas by US banks was called back. Britain and Germany were hit especially hard, and unemployment rose rapidly. Countries tried to protect their industries by taxing foreign goods. By 1932, when the Depression reached its deepest level, world exports of raw materials had fallen by over 70 percent, ruining the economies of poorer countries that depended on them.

THE NEW DEAL

Part of President Roosevelt’s New Deal in 1933 included a programme to create more jobs. Young people were given work in the national forests, and a series of dams were built on the Tennessee river to provide electricity and to prevent soil erosion. New welfare and labour laws improved working conditions.