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I am sure you meant "Great" Depression but, semantics aside, there were several reasons for the long term decrease in GDP not only in the United States but worldwide.

1) Think of the 1920's America as you would the years 1995-2008. Credit was abundant, technology brought us the Model T, motorcycles, washing machines, etc. and people just had to have them so they borrowed money in which to buy them. We had just taken part of the victory in WWI so confidence was overflowing and people were borrowing and spending money in a frenzy (sounds familiar to today's economy, huh?) Hence, the 1920's were called the "Roaring Twenties!" Naturally, at some time, bills have to be paid and if there is no money in which to pay them, there is a ripple effect.

2) Behind the Scenes, there were some trade imbalances with other nations(cheap imports) so two representatives (who were either VERY ignorant in economics, overconfident in America's strength, or both) decided to so something about it and increase the tariffs on imported goods. The passing of the Smoot-Hawley act is considered to be the prime flash point of the "Great Depression" as other countries decided to get just as punitive and worldwide trade ground to a halt. On top of all of this...

3) People had overspent and over speculated in investments and with trade depleted, so went the jobs that were affiliated with them and people became very nervous. So much so that banks were "calling their loans" (telling borrowers that they wanted all of their money that was owed NOW!). Naturally, with no ability to pay, jobs disappearing, and a host of other factors caused a quite severe slowdown in production and spending by consumers. As America was the largest single economy at the time, its negative impact spread to other nations (who were equally as guilty for doing many of the same things) and voila! A great depression (actually, a very prolonged recession) had begun.

With history as a context, many people foresaw the economy of the United States taking a downturn because history was just repeating itself and took measures beforehand. As well, the massive government spending during the 1920-1938 years really harmed America and drug the recession out even more, which is why a great deal of America's population disagree with the massive spending and appeasement of the current president, Obama.

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16y ago

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