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The Great Depression began in 1929 and remains the most devastating financial collapse in modern history. Although it started in the United States, its ripple effects reached the UK and other parts of the world. Millions lost their jobs, global trade dropped, and economies weakened for years. In Britain, industrial towns were hit hard, and unemployment surged. Understanding how this happened reveals a complex mix of financial errors, policy failures, and market reactions. In this article, we’ll discuss the key triggers behind this economic disaster.
When the Bubble Burst
Leading up to the crash, the U.S. stock market had grown rapidly, driven by risky speculation. Investors bought shares using borrowed money, hoping to get rich fast. But prices rose far beyond real company values. When the crash came, it was sharp and sudden. The 1929 Wall Street Crash marked the beginning, but not the only factor. This was one of the main causes of great economic depression, which quickly spread beyond American borders — including to the UK’s already fragile post-war economy.
Banking Failures and Reduced Lending
After the market crash, many banks collapsed. People rushed to take out their savings, and banks couldn’t meet demand. This led to business closures and rising unemployment. In the UK, the financial sector also faced pressure as confidence weakened. One major challenge was managing the exogenous money supply, or the flow of money coming from outside the national economy. Without enough liquidity, lending dried up, further damaging consumer and business activity on both sides of the Atlantic.
Poor Policy Response Deepened the Pain
Governments struggled to respond effectively. In the early years, many adopted austerity measures instead of boosting spending. This reduced public demand and made economic conditions worse. Central banks also failed to act quickly. The Federal Reserve in the U.S. did not increase the fed m2 money supply — a key measure of circulating cash — fast enough to stimulate recovery. Britain, which had returned to the gold standard in the 1920s, found itself locked into deflationary pressure, limiting its ability to respond with flexible monetary policies.
Flight to Safety: A Turn to Gold
When banks were failing and currency value became uncertain, people looked for safer places to store their wealth. One reaction was to buy gold bars, which were seen as a secure investment. Gold held value when paper currencies did not. In the UK, many investors also sought the safety of gold, reflecting a deep lack of trust in the financial system. The increased demand for gold highlighted just how shaken the public’s confidence had become.
Final Thoughts: History as a Warning
The Great Depression remains a cautionary tale. Weak oversight, policy mistakes, and fear-driven reactions helped turn a market crash into a global collapse. Today, economists pay close attention to data like the exogenous money supply and fed m2 money supply to avoid similar outcomes. The UK, now deeply linked to global finance, continues to learn from this history. At Thoth Talk, they break down complex economic trends like the causes of great economic depression, helping readers explore what shaped our financial world — so they can better understand tomorrow.