The Great Depression Around the World: Causes, Impact & Responses

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  • 1:15 1929: Stock Market Crash
  • 2:39 1930
  • 3:41 1931
  • 5:14 1932
  • 6:07 1933
  • 7:56 1934 and Beyond: Recovery
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Lesson Transcript
Instructor: Alexandra Lutz

Alexandra has taught students at every age level from pre-school through adult. She has a BSEd in English Education.

What triggered the Great Depression throughout the globe? In this lesson, you'll learn how the world's biggest financial crisis spread from the United States to other industrialized nations and how they responded to it.

The Roaring 20s

The Roaring 20s promised many a young veteran that the worst days of his life were over. He could live in the moment, buying anything his heart desired on credit, including stocks. The American economy was also 'living it up,' leading the world in production, investing, fueling a post-war boom in Europe, as well.

But things were not as good as they seemed. U.S. farmers had expanded too quickly at the start of WWI and now found themselves with too much debt, too much product, and falling prices. American city dwellers over-borrowed. And even though demand drove prices on the stock market ever higher, many of the industries behind Wall Street were barely breaking even.

Meanwhile, Germany strained under the burden of war reparations to France and Britain, who, in turn, owed billions of dollars in war debts to the United States. To keep the payments flowing, American bankers lent money to Germany, which it could use to pay its reparations to the Allies, who would then use it to repay debts to the U.S. This fragile cycle was known as the Dawes Plan and its successor, the Young Plan.

1929: The Wall Street Stock Market Crash

And then, over two days in late October 1929, the New York stock exchange abruptly lost a quarter of its value, ultimately tumbling nearly 90%. Americans lost more money than the nation had spent on WWI. Businesses went under. Unemployment climbed steadily. Banks failed at alarming rates, evaporating the life savings of many people.

And like so many other products, the U.S. exported the Great Depression to its trading partners. Australia, with a 10% unemployment rate before the crash, was one of the first to fall. Latin America, which had depended on selling raw materials to U.S. industries (whose doors were now closed), also felt the pain early. Industrialized nations in Africa, Asia, and Europe faced economic collapse.

One of the most common responses everywhere, sooner or later, was a change in government, some more radical than others. Some Latin American countries turned to military dictatorships to restore stability. Germany, Italy, and Japan looked to fascism. The Depression helped establish a totalitarian form of communism in the Soviet Union, while many westernized nations developed what's been called welfare capitalism in which governments assume much greater power and control over the well-being of their citizens.


By 1930, cash-strapped Americans were withdrawing capital from European investments and banks in the United States demanded repayment of loans they had made to European countries during WWI. As a result, European banks began to fold. Then in June 1930, the United States passed the Hawley-Smoot Tariff, which nearly doubled the taxes on certain imported goods. Britain soon passed its own protectionist tariff, as did many other nations. Intended to protect domestic manufacturing, it had the effect of bringing international trade to a standstill.

Germany was the first of the European nations to crash. Funding from the Dawes and Young Plans dried up. With industrial output down 40%, German workers lashed out against the fledgling Weimar Republic instituted after WWI. Labor unrest led to social and political dissent and in 1930, voters sent 77 Communists and 107 Nazi party members to the legislature.


Austria stumbled next. In May 1931, Austria's largest bank (which financed 2/3 of Austrian industry and held 70% of the country's banking assets) went bankrupt. This prompted a run on other European banks. In the next two months, Germany's central bank lost $2 billion in withdrawals. When the Weimar Republic announced that it would not be able to pay its reparations, the U.S. suggested a worldwide moratorium on all debts for a year. But France and Britain were dependent upon this cash from Germany and their economies began to slip. Throughout 1931, France's industrial production fell 29%; British production dropped 14%.

Britain's Parliament changed hands. After slashing the budget in September 1931, Britain abandoned the gold standard, meaning its currency could exceed its gold reserves. This allowed the government to increase the amount of money in circulation and stimulate spending within the nation. Sweden, Canada, New Zealand, and other nations followed suit. But the widespread abandonment of gold increased the value of silver. China, one of the few nations on a silver standard, faced declining exports as fewer nations could afford to do business with them. Japan set its sights on the struggling giant.


By 1932, U.S. industrial output had fallen 45% and like other countries, elected new leaders. Congress felt it could not continue to suspend Germany's reparations payments any longer. Germany's European creditors could see that the payments would undermine not only Germany's economy, but its rapidly failing republic. France and the U.K. proposed canceling Germany's reparations payments as well as their own war debts to the U.S.; incoming President Roosevelt refused. America's hard line caused resentment throughout Europe and deepened Germany's recession. A third of its workforce was now unemployed. Germany turned increasingly inward, favoring nationalist policies regardless of their effects on any other countries.


Although statistics vary, as of 1933, nearly 29% of Denmark's available workforce was unemployed. In Germany, 26%; in the U.S. and Sweden, about 24%; Belgium, more than 20%; Britain, 14%. Desperate citizens everywhere demanded that their leaders take aggressive measures to solve the economic problems of their own country. Radical groups promising stability grew in strength around the world.

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