Econ 224
FINAL 224
Chapter 3: Economic Crisis & Recovery 1929-1939
Europe in a Depression(1929 till 1932-33)
• Origin of the 1929 Downturn
- The real origin of the slump had to be located with the US. This does not mean that there were no cyclical weaknesses elsewhere but it is mainly US bcz it had a major influence on the world economy.
- The US witnessed 2 major shocks: 1- decrease (Curtailment) of foreign lending 1928-29 which had a deflation impact on the world economy:
capital imports of European countries declined. They used to use it to offset BOP. When this became limited, the only way to balance BOP was to draw upon their limited reserves of Gold. So we have deflation. Also, no capital inflow means that debtor countries have a tailing off in domestic economic activity.
2- the peaking of the boom in 1929.
- Sharp decline in business following the crash of the American stock market in October 1929. This led to further reduction in foreign lending and a contraction in import demand. So the flow of dollars to Europe fell and commodity prices fell dramatically.
- Misguided government policies.
• Deepening Depression and Financial Crisis
- By 1930 most countries were in depression.
- Incomes fell, budgets were unbalanced, governments introduced deflationary policies which made things worse, sufficient funds were not available to debtor countries.
- The European crisis can be seen as a general failure on part of the creditor countries.
- The chief creditors began to experience severe monetary problems.
- The US suffered from 1000s of bank failures after the stock market crash,
- The increasing demand for liquidity in 1930-31 led to bank failures throughout Europe.
- Fall of the Austrian credit Anstalt
Aftermath of the Crisis
Chapter 3: Economic Crisis & Recovery 1929-1939
Europe in a Depression(1929 till 1932-33)
• Origin of the 1929 Downturn
- The real origin of the slump had to be located with the US. This does not mean that there were no cyclical weaknesses elsewhere but it is mainly US bcz it had a major influence on the world economy.
- The US witnessed 2 major shocks: 1- decrease (Curtailment) of foreign lending 1928-29 which had a deflation impact on the world economy:
capital imports of European countries declined. They used to use it to offset BOP. When this became limited, the only way to balance BOP was to draw upon their limited reserves of Gold. So we have deflation. Also, no capital inflow means that debtor countries have a tailing off in domestic economic activity.
2- the peaking of the boom in 1929.
- Sharp decline in business following the crash of the American stock market in October 1929. This led to further reduction in foreign lending and a contraction in import demand. So the flow of dollars to Europe fell and commodity prices fell dramatically.
- Misguided government policies.
• Deepening Depression and Financial Crisis
- By 1930 most countries were in depression.
- Incomes fell, budgets were unbalanced, governments introduced deflationary policies which made things worse, sufficient funds were not available to debtor countries.
- The European crisis can be seen as a general failure on part of the creditor countries.
- The chief creditors began to experience severe monetary problems.
- The US suffered from 1000s of bank failures after the stock market crash,
- The increasing demand for liquidity in 1930-31 led to bank failures throughout Europe.
- Fall of the Austrian credit Anstalt
Aftermath of the Crisis