The Great Depression: Causes, Consequences, and Lessons Learned

The Great Depression was not caused by a single factor; rather, it was caused by a conglomerate of policies, systems, and measures across the years, particularly from 1929 to 1933. The bubble first burst in 1929, starting the prolonged depression. The cause of the burst was the massive boom of the 1920’s, a consequence of the government’s monetary policies that created large quantities of money and credit in the economy. After the sharp decline in business, the Reserve banks created more credit into the economy in 1924. In barely a year, there was credit expansion of more than $4 billion (Duignan, 2019). The easy money policies availed credit at low interest rates. The stock prices were high; hence people thought that investing in the stock market was a very easy way of making money. Therefore, some borrowed to invest in the stock markets, but when the prices reached the peak, a sharp decline was witnessed. People rushed to withdraw their money from the stock markets and banks because of the trend, and contributed to the closure of many financial institutions. Another factor was the raised tariffs that prohibited other countries from exporting their goods to the United States in an attempt to protect local industries. Consequently, other countries boycotted the United States’ goods, causing low prices, and massive loss of jobs, especially in the agriculture sector. 

The 2007/2008 global financial recession was almost similar to the Great Depression. The recession was caused by lack of clear forecasting, especially by the banking institutions. The banks were blinded by the booming real estate industry, and gave loans to individuals without checking their credit-worthiness (Sanches, 2014). The housing boom reached the peak and most of the developers either sold their houses at a loss or did not find buyers at all. Therefore, there was no money to pay the lenders, a situation that led to the collapse of many financial institutions and extensive loss of jobs. 

References 

Duignan, B. (2019). Causes of the Great Depression. Accessed from https://www.britannica.com/story/causes-of-the-great-depression 

Sanches, D. (2014). Shadow Banking and the Crisis of 2007-08.  Federal Reserve Bank of Philadelphia Business Review Q ,  2 , 7-14.