Many Americans know that the Great Depression was started by the bursting of the giant Wall Street bubble of the 1920′s (fueled by the use of bank deposits on speculative gambling, which is why Glass-Steagall was passed) , which in turn caused a run on American banks.
But most Americans don’t know that the second leg of the Depression was caused by European defaults.
As Yves Smith reminds us:
Recall that the Great Depression nadir was the sovereign debt default phase.
The second leg down of the Depression was larger than the first, as shown by this chart of the Dow:
[Click here for full chart]
The second leg down was primarily initiated by the failure of the Creditanstalt bank in Austria. Creditanstalt (also spelled Kreditanstalt) declared bankruptcy in May 1931.
As Time Magazine noted on November 2, 1931:
May 14 : First thunderclap of the present crisis: collapse in Vienna of Kreditanstalt, colossal Rothschild bank, which is taken over by the Austrian Government, shaking confidence in related German banks.