From boom to bust

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During the 1920s, the economy of the United States was booming. It was the largest and richest economy in the world. People made fortunes by buying stocks and shares on the United States' stockmarket. Many borrowed money so that they could invest.

Prices kept going up, making people richer. But, too much money was chasing too few stocks resulting in the market becoming over-heated. On 3 September 1929, stock prices reached an all-time high. Shortly, prices began to drop, leading to panic and mass-selling. By October 1929, the value of the market had nearly halved. This is known as the Wall Street Crash.

Suddenly everyone wanted to get their money out. Banks did not have enough money to repay everyone or to lend to businesses. As a result businesses went bust, leading to high unemployment across America. As economies were linked together, the rest of the world suffered too.

During the 1920s, the German economy had been supported by loans from American banks. After the Wall Street Crash, the Americans wanted their money back and called in the loans. America gave Germany just 90 days to start repayment. Germany could not pay.

As in America, German businesses failed. Unemployment reached more than four million in 1931, and Germany suspended payment of reparations to the Allies. By 1932 unemployment in Germany was more than six million. Despite the partial recovery following the end of the First World War, the collapse of the economy brought Germany back into crisis.