What were some of the warning signs of the Great Depression? Should contemporary leaders have seen what was coming?

1 Answer
Nov 17, 2016

Debt. Lots and lots of debt.


In economics, the term used to describe the ups and downs of the economy is called the business cycle. You have the expansion phase, the peak, the recessionary phase, and then the trough. During the expansion phase, spending increases, prices go up, and wages go up. After the economy hits the peak, it starts to decline--spending decreases, then production decreases, then workers are laid off until the economy hits the bottom, called the trough. If the bottom is especially low, this is called a depression. During the Roaring Twenties, people spent more and more and more money. To do this, they borrowed more and more and more money, creating more and more and more debt. Because of inflation, the interest rates were artificially low, encouraging even more borrowing. Eventually, the economy stalled from all the debt and began to plummet. Jobs were lost, and banks took people's homes because they couldn't pay back their loans.

So what could the leaders have done to prevent the Depression? The best possible solution would've been to discourage all the debt. If they had done that, people wouldn't have had to pay it all back later, and even if they got laid off, the burden wouldn't have been as much.