Causes Of The Great Depression Facts
•In the 1920s, sometimes referred to as “The Roaring Twenties,”there was a false sense of prosperity on the part of Americans. Approximately 60% of the population lived at a poverty level (earning less than $2,000 per year), yet credit was available, and people were using it. People were buying cars and radios on installment credit, and the automobile industry was the leading industry in the country.
•Speculation in the stock market was one of the causes of the Great Depression, yet only about 1% of the American population were investors at the time of the stock market crash in October 1929.
•In the stock market, people were buying stocks on margin (which is the same as borrowing money to pay for stocks), which sent the Dow Jones from 191 points at the beginning of 1928 to 381 points by September 1929 (shortly before Black Tuesday).
•In 1929, approximately 200 corporations owned more than 50% of all American industry.
•In 1929, approximately 1% of Americans controlled 40% of the wealth of the company. •Banks were failing long before the stock market crashed in 1929. In fact, during the 1920s, 600 banks failed each year, on average.
•The Great Depression was caused by fearlessness and fearfulness, overconfidence and loss of confidence. The booms of the 1920s led to borrowing, speculation, and rampant spending. Once things started to go downhill (primarily throughout 1929), they spiraled quickly. The stock market crash of October 1929 caused a run on the banks, which led to a decrease in spending, which led to unemployment, which caused more of a run on banks and more decreases in spending.
•From 1929 to 1933, the United States’Gross National Product (GNP) dropped by 33%.
•Drought conditions in 1932, 1933, 1934, and 1935 led to Dust Bowl conditions during the Great Depression. A large part of America’s farmlands lost their topsoil due to extreme winds, which rendered millions of acres useless.
The similarities between The Great Depression and China’s current economy
Here I make some comparative analysis based on some official data about china’s stock market and economy development and The Great Depression,we can find that there are so many similarities right before the crash in 1929 and china nowadays.
(1)Both have undergone a long period of rapid economic development.During the golden
age(1921-1929),the U.S. Economic growth rate stayed at a high level which is 4.4% in real terms,the fastest in history.Meanwhile,the rate of price change maintain stable within 5%.In China,the growth rate has been more than 9% for decades,and the price index keeps the rate around 3%.
(2)There are imbalance problems,internal and external.In the 1920’s,the recession in Britain led to the inflow of gold to United States,so the government had to print more papers and lower the interest rate of dollar to ease the problem.China is facing the similar problem now,due to the trade surplus and foreign investment as well as some international hot money,a lot of dollars flows into China,so the Central Bank has to put more RMB to market passively,the rapid growth of foreign exchange reserve and the flooding of money caused by compulsive settlement of exchange aggravate the imbalance,at the same time ,the central bank has to reform the RMB exchange rate regime and raise interest rate to cope with these problems.
（3）Before 1925,primarily the bubble of land speculation , then the stock market bubble after 1925.The bubble of land speculation burst in 1926 for Florida suffered severe hurricanes.China’s asset bubble problem,mainly in real estate prices and the stock market,China’s current level
of P/E ratio doubles the world average,seen in this indicator,there is a sign of stock bubble and a tendency to enlarge.
At last,from my point of view,the government should implement the tight monetary policy to prevent inflation,at the same time,implementing a proactive fiscal policy to prevent economic recession,just to ensure the steady growth of the economy and the healthy development of stock market fundamentally.。