What happened in 1931 to turn a bad economic downturn into the Great Depression? Dramatic events in Europe included failure of Credit-Anstalt, Austria’s biggest bank, in May of 1931. That was followed by bank runs in Hungary, Czechoslovakia, Romania, Poland, and Germany. As is often the case historically, the financial problems were a combination of a banking crisis….and a currency crisis…..
In 1931, countries faced doubts about whether they would stay on the gold standard, and had a choice of either to abandon gold or else to inflict further domestic economic damage in the form of monetary contraction and price deflation. Those doubts and their damage ended up bouncing across countries like a ping pong ball.
And the same question ‘begs’ today as did in 1931. Was the anti gold and anti defaltion policy the correct one?
We cannot know what might have been, but it is difficult to imagine a worse outcome than the Great Depression and WW2.
Have you watched the James Rickards video: History of the Gold Standard in the 20th Century? He believes that the inflation policy was correct and that incorrect application of the gold standard increased the severity of the crash.