Section 2: A Worldwide Depression

1. Section 2: A Worldwide Depression Main idea: an economic depression in the United States spread throughout the world and lasted for a decade

2. Setting the Stage • Only the United States and Japan came out of World War I in better financial shape than before • European nations were rebuilding their economies with loans from the United States • Americans were so confident in their economy; their stock market was booming

3. Postwar Europe: Unstable New Democracies • New democracies were established in many European countries; for the first time most European nations had democratic governments • These democracies had many political parties, making it impossible for any single power to get enough support • Parties had to form coalitions, which are temporary alliances • The frequent changes in government made it hard for democratic countries to develop strong leadership or accomplish long-term goals

4. The Weimar Republic • The Weimar Republic was Germany’s new democratic government set up in 1919. However, it was a weak government • Germany lacked a democratic tradition • Many political parties • Many Germans blamed the Weimar government for Germany’s defeat and the reparations they had to pay

5. The Weimar Republic cont’d • At the end of WWI, Germany faced a terrible inflation • The German government printed money to pay for the war; this money lost its value after the war • German government kept printing more money after the war to pay for reparations; so the money was worth less and less • Cost of bread in Germany • 1918: less than 1 mark • 1922: 160 marks • 1923: 200 billion marks

6. The Weimar Republic cont’d • The Dawes Plan: $200 million loan from American banks to stabilize the German currency and a better payment plan for the reparations • With this plan the German economy recovered • This better economy attracted more loans and investments from the Unites States

7. Financial Collapse • American economic prosperity largely sustained the world economy. When it collapsed, the world economy collapsed • A flawed U.S. economy • Uneven distribution of wealth • Overproduction by business and agriculture • Buying on margin and on credit

8. Financial Collapse • The Stock Market Crash • Wall Street’s New York Stock Exchange • Some investors thought prices were unnaturally high, so they began to sell before prices fell • Stock prices began falling, and more and more investors tried to sell, but no one was buying •  stock market collapsed on Tuesday, October 29

9. The Great Depression • A long business slump, knows as the Great Depression, followed the stock market crash. • Once the stock market crashed, people who had bought stocks on margin could not repay their loans • Many banks closed, and people lost their savings • Many people and businesses could not pay back loans, so they lost their homes/business • Industrial production, prices, and wages declined

13. A Global Depression • American lenders demanded repayment of their loans in Europe, and they stopped investing money on Europe • High tariffs were put in place: tax on imported goods; to protect the domestic market •  world trade dropped by 65% • Germany and Austria were particularly hard hit because of their dependence on American loans and investment