here's a part of the article about the great depression on ms encarta encyclopedia to prove my claim. cant post the entire article coz its very big and btw, its not the "vicious cycle of confidence" is the problem of the contries during that time but "vicious cycle of collapsing confidence". i forgot to type the collapsing
V THE ROAD TO RECOVERY
At first, the widespread conviction among politicians and their advisors that there was little alternative to gold-standard orthodoxy meant that government economic policy made things worse rather than better. Britain’s departure from the gold standard showed the way out of the crisis. Sterling became a floating currency in September 1931 and its value fell by some 30 per cent, which immediately made British exports much cheaper. Government economic policy was now also freed from the rigorous demands of the gold standard. Interest rates were cut, making it easier for businesses and government to borrow money. The state could afford to spend more, and, as confidence in the future began to rise, so, too, did society’s willingness to buy goods. A virtuous circle had now set in. Britain’s recovery strategy also developed a strong regional dimension thanks to special trade concessions given to members of the Empire and Commonwealth in 1932. These countries had left the gold standard with Britain and formed an informal currency group, the Sterling Bloc.
In April 1933 the Democrat Administration of Franklin D. Roosevelt in the United States opted to abandon the gold standard. This meant the new administration was freed from the rules of the gold standard and could draw up new spending plans to give a “New Deal” to the American people. Because the American economy was so large, its recovery brought immediate benefits to the rest of the world.
In Germany, as in a number of other countries in central and eastern Europe, the road to economic recovery took rather a different form. Under the Nazi government that took office in January 1933, emergency measures taken by previous governments, like the exchange restrictions introduced in the summer of 1931, evolved into a complex system of trade and monetary restrictions. The Nazi government used and expanded these measures to control the domestic economy and Germany’s relations with the wider world. The regime managed trade, the movement of foreign exchange, prices, wages, private investment banks, and all other aspects of investment. This level of control enabled Germany to ignore the rules of the gold standard to introduce a programme of government spending to generate demand and expand income. Between 1933 and 1934 government investment doubled as money was spent on employment schemes, industrial investment, and reconstruction plans. During 1935 government investment increased by a further 60 per cent, rising again during 1936 as the Nazi state began its rearmament drive in earnest.
Germany’s drive for national self-sufficiency (autarchy) was in marked contrast to the commitment of Belgium, the Netherlands, and France to the internationalism of the gold standard. They all clung to gold until the mid-1930s, which meant they experienced their deepest economic and political crisis in the mid-1930s, the worst possible timing when it came to facing German and Italian expansionism.
But although some semblance of recovery had been achieved by the end of the decade, it was neither complete nor sustained. Levels of international trade and investment remained very depressed, and if it had not been for the demand generated by preparations for World War II, it is very likely the world would have entered a new depression in 1937.
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