The Second Leg of the Great Depression Was Caused by European Defaults → Washingtons Blog
The Second Leg of the Great Depression Was Caused by European Defaults - Washingtons Blog

Tuesday, May 11, 2010

The Second Leg of the Great Depression Was Caused by European Defaults

Many Americans know that the Great Depression was started by the bursting of the giant Wall Street bubble of the 1920's (fueled by the use of bank deposits on speculative gambling, which is why Glass-Steagall was passed) , which in turn caused a run on American banks.

But most Americans don't know that the second leg of the Depression was caused by European defaults.

As Yves Smith reminds us:

Recall that the Great Depression nadir was the sovereign debt default phase.

The second leg down of the Depression was larger than the first, as shown by this chart of the Dow:

[Click here for full chart]

The second leg down was primarily initiated by the failure of the Creditanstalt bank in Austria. Creditanstalt (also spelled Kreditanstalt) declared bankruptcy in May 1931.

As Time Magazine noted on November 2, 1931:

May 14 [1931]: First thunderclap of the present crisis: collapse in Vienna of Kreditanstalt, colossal Rothschild bank, which is taken over by the Austrian Government, shaking confidence in related German banks.


  1. to get out of this mess do what JFK wanted to do close the federal reserve bank and cansel all dept with executive order 11110 but the killed him for it

  2. So, the second leg of the Great Depression wasn't in 1937 anymore?

  3. I disagree with a part of this. I do think we're headed toward a Great(er) Depression.
    With the unemployment at its current rate, we are either very close to a depression or in a depression right now. You have to keep in mind that the official unemployment "numbers" don't represent the people who are no longer eligible for unemployment "benefits" but still have no job.
    Add to that the people who are underemployed, then the declining value of the dollar, it seems as if a Great(er) Depression will be on us soon.
    My $0.02

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  5. nader paul kucinich gravel mckinneyMay 12, 2010 at 4:58 AM

    Europe is about to erupt

    UK election fraud
    Merkel in trouble

  6. Official unemployment nos also do not account at all for self-employed people - of which there are a lot - who do not even qualify for government handouts at all when the economy takes such a dive. These people are completely not counted at all and that would include me - I have been deeply affected by this crisis, as well as every single small client I have, had, used to have - my personal little business is aware of 100 (at least) related to me personally that are in the same boat.

  7. While it is true that European banking failures were part of the cause of the second leg down, the big reaction came on June 17, 1930, when the Smoot-Hawley Tariff protectionist act was passed. There were other contributors, in other words.

  8. The whole monetary system is nothing more than a nod and a wink. It's long overdue to go belly up. Too bad for all you/us working stiffs. Better stock ammo and provisions. Become self sufficient now before the caca hits the proverbial fan


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