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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Cogito Ergo Sum who wrote (16764)3/12/2002 11:43:55 AM
From: Ilaine  Read Replies (2) of 74559
 
>>What are the factors that causes the depression?<<

Multi-factorial, with feedback loops. Reductionists with agendas pick one cause and ignore the rest, which makes them unreliable.

Tariffs 1) raise the prices of imported goods, which hurts domestic consumers, and hurts foreign producers; 2) gives domestic producers less competition, which helps domestic producers, and may or may not have any effect on domestic prices, which may or may not have an effect on consumption by both domestic and foreign consumers; 3) probably changes the balance of trade - although maybe domestic producers will employ more domestic consumers who will still consume foreign goods anyway.

In the 1920's, the United States was a creditor nation, and countries which borrowed money from US lenders had to repay in gold or US dollars, so tariffs hampered their ability to sell their goods for dollars to repay debt. This meant they had to repay in gold, which reduced their money supply.

The Great Crash did not "cause" bank failures, except maybe the Bank of United States in New York City, which was a large bank but not that large. Bank failures were endemic in the US throughout the 1920's due in large part to a world-wide decline in commodity prices (also multi-factorial - - over production, shifts in consumption, bad weather, high real interest rates, deliberate deflation which is hardest on farmers who had high real nominal debt but declining real returns on investment), as well as the McFadden Act of 1927, and Fed action and inaction.

That's leaving out of the discussion the gold standard, the gold exchange standard, German reparations, repayment of Allied debt, high real wages, population changes, changes in immigration policies, changes in the relationship between capitalists and employees (trade unions, strikes, government guaranteed benefits) and other stuff. (WWI saw the demise of empires - the Austro-Hungarian Empire, the Ottoman Empire, the Holy Roman Empire and the end was in sight for the British Empire. The world which emerged from the ashes of WWI was very different, new, and politically unstable.)

In Germany in the winter of 1932, unemployment in the building trades was in excess of 80%. It should come as no surprise that people voted for Hitler.

A little knowledge is a dangerous thing.
Drink deep or taste not the Pierian spring.
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