The Great Depression began in October of 1929 when the stock market crashed on a day known as Black Tuesday. In industrialized countries and those that exported raw materials, the depression had devastating effects. Personal incomes, tax revenues, international trade, and prices and profits declined drastically. Crop prices fell by 40 to 60 percent in farming and rural areas. Miners and people in the logging industry were probably hit the hardest because demand declined sharply. The great depression hit several countries and ended at different times in each country. Most countries set up relief programs and went through some sort of political upheaval. Democracy was in decline and dictatorship made big strides. During that time some of the dictators that emerged include: Joseph Stalin, Adolf Hitler, and Benito Mussolini. There were seven major problems during the great depression. Obviously debt was a big reason for the depression. U.S. Smoot-Hawley Tariff Act reduced international trade by adding a lot of regulations. Another factor was poor decision making on the part of the American Federal Reserve System and continuous crisis in the banking system. The Australian School of Economics say the Great Depression happened because of the expansion of money supply that created a credit driven boom. Franklin Roosevelt said that a excess of big businesses caused a bubble like economy. He believed business was the problem and the cause. Lower aggregate expenditures in the economy contributed to a massive decline in income. Mass production of goods was not met with mass consumption of goods. People weren't buying as much as the business were making.

Commercial and Consumer debt were created by the widespread purchases of business and factories on credit, home mortgages, credit purchases of automobiles, credit purchases of furniture, and even credit purchases of some stocks. Businesses started to fail when construction and factory orders failed. Unemployment rates went over 25% after massive layoffs occurred. Many people who had taken out loans from banks defaulted causing the bank depositors get scared and withdrawal massive amounts. The government tried to set up regulations to prevent this but they weren't very effective. This caused a loss in billions of dollars of assets. Forty percent of the money supply was destroyed due to the bank crisis. During the first 10 months of 1930, 744 banks failed. Depositor lost 140 billion dollars when the banks failed. The banks that survived became extremely conservative. This helped the banks build up their capitol reserves. All of this created a cycle that just kept creating more and more debt. This turned a recession into a depression.

The Smoot-Hawley Tariff grew out of the campaign promises of Herbert Hoover during the 1928 presidential election. Hoover, the Republican candidate, had pledged to help farmers by raising tariffs on imports of farm products. Although the 1920s were generally a period of prosperity in the United States, this was not true of agriculture; average farm incomes actually declined between 1920 and 1929. During the campaign Hoover had focused on plans to raise tariffs on farm products, but the tariff plank in the 1928 Republican Party platform had actually referred to the potential of more far-reaching increases.

In a longer perspective, the Republican Party had been in favor of a protective tariff since its founding in the 1850s‘ . The party drew significant support from manufacturing interests in the Midwest and Northeast that believed they benefited from high tariff barriers against foreign imports. Although the free trade arguments dear to most economists were espoused by few American politicians during the 1920s, the Democratic Party was generally critical of high tariffs. In the 1920s the Democratic members of Congress tended to represent southern agricultural interests which saw high tariffs as curtailing foreign markets for their exports, particularly cotton or unskilled urban workers who saw the tariff as driving up the cost of living.

The Fed was exclusively created to prevent bank panics and Depressions. The Fed took several actions that, were quite bad. The first thing it did was to inflate the money supply by about 60% during the 1920's. If the Fed had been a little more careful in expanding the money supply, it might have prevented the artificial Stock market boom and subsequent crash. Second, there are indications that the economy was starting to cool off on its own in early 1929, thus making the interest rate hike completely unnecessary and could have avoided the crash. The third mistake the Fed made was in early 1931. The Fed raised interest rates, exactly the wrong thing to do during a contraction. Ironically, the country's gold stock was increasing at this point all on its own, so doing nothing would have increased the money supply and helped the recovery.

At the worst point of the Great Depression, in 1933, one in four Americans who wanted to work was unable to find a job. Further, it was not until 1941, when World War II was underway, that the official unemployment rate finally fell below 10%. This massive wave of unemployment hit before a food stamp program and unemployment insurance existed. There were few government programs designed to help the poor or those in temporary difficulty. Further, most wives did not work, so if the husband lost his job, all income for that household stopped. An equivalent rate of unemployment today would cause less economic hardship because of the variety of programs that cushion unemployment and poverty.