What caused the Great Depression, and why did the banks fail?

History has a nasty habit of repeating itself, and America is headed deep into its “f— around and find out” era. We’re perfectly poised to re-learn some hard taught historical lessons, and all because Donald Trump’s vision ends at the tip of his nose.

Across several centuries, America has seen presidents with little to no foresight, and it’s seen presidents with an astonishing lack of historical understanding. The former tend to make decisions without considering future implications, and the latter ignore the lessons we’ve learned across history, insistent that the same actions will bring different outcomes.

Presently, America is saddled with a president who lacks both foresight and historical comprehension, which essentially guarantees disaster. We’re already headed into several situations that could damage our environment, economy, and global standing for decades — if not generations — to come, and Trump’s mishandling of the economy is increasingly guaranteeing a repeat of one of America’s most challenging historical periods: The Great Depression.

A perusal of the causes behind the most severe economic downturn in modern history shows plenty of parallels to our current moment, stoking widespread fear. From how the downturn began to the factors that contributed to its wide-reaching effects, there’s real reason to fear that we’re headed toward a second Great Depression.

What caused the Great Depression?

The Great Depression affected nearly every country on the map, but it was overall at its worst in America. Lasting a good decade, between 1929 and 1939, the economic stall saw unemployment rise above 20%, gross domestic production (GDP) plummet by 30%, and unemployment and poverty skyrocket.

There’s no universal agreement among historians and economists regarding the exact causes of the Great Depression, but various sources point to several contributing factors — most of which are seeing frightening echoes in the early months of Donald Trump’s second term.

The way I see it, there’s only one factor cited by Britannica that doesn’t display modern parallels, and that’s the gold standard. A relic, at this point, the gold standard destabilized the global economy in the 1930s, leading to the broad devaluing of currency across the market. It was the response of banks to this imbalance that really sent things spinning, however, and kicked off the worst of the Great Depression in Europe.

The other three factors cited — banking panics, the stock market crash, and tariffs plus a decrease in international lending — all feel frighteningly familiar to a modern American. We’re paving the way for a repeat of the scenario that set us down this path a century ago, but things may well be worse this time around.

The clearest ties to our modern situation are the stock market crash and tariffs — specifically 1930’s Smoot-Hawley Tariff — both of which feel depressingly familiar in 2025. The stock market crashed in the fall of 1929, and over the next few years lost 80 to 85% of its value. That decimated wealth among investors, and at the same time caused a panic among regular folks, all of which contributed to a rapid degradation of the economy.

The stock market hasn’t completely crashed out yet, but it’s not looking good. The Dow Jones plummeted more than 700 points after Trump’s tariffs kicked in, and other heavy-hitters like the S&P 500 and Nasdaq likewise saw major drops. There’s always a chance things will even back out, but with the next factor on our list coming in hot and heavy, it’s doubtful.

In 1930, it was a single tariff, but in 2025 it will be a slew of tariffs that tank the international economy. All prompted by the United States, just like they were the first time around. Back then, it was big business and agriculture pressuring President Hoover to raise tariffs on imports, and that’s exactly what he did — despite broad pushback from economists.

The result of that single tariff was, surprise surprise, more tariffs, as impacted countries implemented their own retaliatory tariffs against the United States. And as big business and the wealthy stood locked in a stand-off, world trade collapsed in on itself. Homelessness, unemployment, and poverty skyrocketed, a year of hardship stretched into a decade, and a black mark wrote itself into history books across the globe.

What caused the banks to fail in the 1930s?

Banking panics have yet to become an issue in 2025, and — in an ideal scenario — that particular issue may never arise. But it was banking panics that kicked off the 2007-2009 recession, and when the economy tanks, the banks tend to follow. We can help avoid this issue becoming widespread, however, by doing our absolute best not to react in alarm as the economy fluctuates. We cause issues with the banks when we mass withdraw, and can cause the exact issues we’re attempting to avoid, per Britannica.

The banks failed in 1930 for largely the same reason they failed in 2007 — because of instability and a loss of confidence. When the economy tanks, people want to protect what’s theirs, and they often don’t trust the establishment. So they rush to the banks to withdraw everything they have, and create a scenario in which initially-stable banks become insecure.

Like international economic Jenga, all it took was the removal of one single brick to destroy wealth built over generations, and plunge the world into a historic depression in the 1930s. We’re back to playing a very dangerous game, and there’s no one on the planet who wants Donald Trump on their team.