About great depression, floods

 

When the financial meltdown of 2007 and 2008 started gathering momentum, presidents and prime ministers of various nations remembered the devastation of the Great Depression which started in United States (US) in October 1929 which spread to other countries and lasted until the beginning of World War II. It lasted so long because every nation was practising begger-thy-neighbour policies instead of working together to defeat the common enemy. Between 2007 and 2008, nations of the world frantically worked together. What would have been Great Depression two was nipped in the bud.

Folklore states that the Great Depression was ignited by the stock market crash of October 29 1929 known thereafter as Black Tuesday when 16 million shares of stock were traded by panic-stricken people.

The end of World War I brought in prosperity to the US, but it was not prosperity shared by other nations to which US was exporting to. By 1928, there was frenzy; people were buying shares in millions using borrowed capital to make quick wealth through companies they believed were buoyant. A few economists warned that the bullish market was not going to last.

When some of the companies, which had issued most shares started posting trading losses, the stock-buying public also started selling their shares to get out their money before the company became insolvent. The stock market crash then took place in October 1929.

Many executives of companies that became insolvent or bankrupt committed suicide; farmers who could not pay back loans to banks saw their land foreclosed and most banks suddenly closed their doors. There was gloom all over the vast country.

The following are generally identified as the causes of the Great Depression;

 

1.Prosperity had been excessively dependent on a few basic commodities notably construction and automobiles in the late 1920s. These industries began to decline, but people believed them to be still growing and bought shares in millions.

2.There was uneven spread of purchasing power. The proportion of profits that went to farmers, factory workers and other potential consumers and customers was too small. They were not buying enough of the goods they were making contrary to Say’s Law which states that supply creates its own demand. They were too poor to buy cars and houses.

3.Farmers were too indebted to banks at the time their crops were fetching low prices. Hence, they were unable to clear their mortgages. The small banks collapsed when they were not paid the loans. Some of the large banks were failing to maintain adequate reserves and were investing in stock recklessly.

4.America was much less dependent on international trade, Europeans demand for American goods declined too much because of the destruction caused by the Great War or World War I.

5.The international debt structure contributed to the Great Depression, America refused to forgive its European debtors. Germany was burdened with the reparations imposed on her and could not become a good customer.

 

According to the magazine of the Royal Economic Society titled Newsletter dated January 2016, floods are a global problem. In a newly published study by the Centre for Economic Performance (CEP) between 2003 and 2004, Dr Guy Michaels and colleagues studied more than 50 large floods which displaced one million people in over 1 800 cities.

They found that low-lying urban areas are hit much more often by large floods and have yet a higher density of economic activity because governments bear much of the cost of building and maintaining floods defences as well as compensating floods victims. For these reasons, private developers have an incentive to build in cheap flood prone areas. Too many people end up living in these risky areas.

The researchers advise that to begin to contain these problems, we should at the very least, tighten the restriction on new construction in flood prone areas. In Malawi and elsewhere, it has proven to be a gargantuan task to try to make people quit flood prone areas and reside elsewhere.

 

Share This Post