Economic Depression

The Great Depression that hit the world economy in the 1930s had a number of causes. Germany was reeling from the war reparations that it had to pay as required by the Treaty of Versailles. As the Weimar government struggled to make payments, they printed lots of paper money, causing extreme inflation. In order to protect its domestic industries, the U.S. enacted higher tariffs. Other countries retaliated with tariffs of their own, which led to a collapse of prices in international trade. European countries struggled to make payments on their debts as fewer U.S. dollars were spent on European goods.

The U.S. emerged from the war as the world's major economic power and its economy thrived while it expanded its production capacities. American businesses and consumers started borrowing large amounts of money to finance their purchases. Some even used borrowed money to invest in the stock market which seemed as though it would go up forever. Unfortunately, after the Stock Market Crash of 1929, this excessive expansion of credit left people highly indebted, which had a huge impact on the country. People bought fewer goods, leading to business closures and high unemployment. Finally, many banks failed and credit collapsed as result.

The Great Depression weakened Western democracies making it difficult from them to challenge the threat of radical political movements, such as totalitarianism. The Nazi Party in Germany became more popular as it blamed the European Jews for the country's economic collapse. Adolf Hitler used the country's economic problems to gain supporters and eventually became the leader of Germany. Meanwhile, the Depression led to the rise of totalitarian movements in other countries in a prelude to World War II.