What caused the great depression to get even worse following the American stock market crash?

Answer 1

Answer this question… Countries around the world established tariffs in an effort to protect domestic businesses.

Answer 2

Private investors were highly leveraged, meaning that in 1929 you could borrow $ 9 from the bank against every $ 1 you invested with your own money. When the Stock Market crashed, people were left with huge debts that the banks basically had to write off - this apart from their own losses on stock investments. In order to 're-balance' so to speak their own balance sheets, banks now had to immediately call in other, commercial, loans so that the amount of debts outstanding would once again mach the reduced amount of their assets. The result was that many companies and almost all farmers, who already during the good stock market days had been struggling, got into great problems. Many defaulted (as did almost 800 banks in the first year after the crash and over the following decade another 2,000) and new loans for restructuring or new activities were almost impossible to get.

To make matters worse, US President Hoover tried to protect US business by instituting an import tariff system to keep foreign competitors out. Only, all other countries then also decided that this was a splendid idea to protect their businesses against foreign competition. The result was that international trade - including US exports - practically came to a standstill.

This again resulted in further massive lay-offs. The USA at the time had no social security system to speak of, so the lay-offs meant that that the spending of salary money was not even partly replaced by the spending of social security money. The millions of people that were laid off simply stopped contributing to the level of economic activity. And that in turn again led to lower sales, lower profits, more defaults and more lay-offs - the same thing that you can see happening today in Greece.

The New Deal's effects on this situation, although important psychologically, were limited in economic terms. It would only be WW2 and the resulting enormous rise in Federal Government spending in the economy that would give an enormous boost to industrial activity and that would finally get the USA out of the depression again.

Answer 3

Countries around the world established tariffs in an effort to protect domestic businesses.