Over the edge

Debt is seen as one of the causes of the Great Depression, particularly in the United States. American consumers and businesses relied on cheap credit, the former to purchase consumer goods such as cars and furniture, and the latter for capital investment. This fuelled strong short-term growth but created consumer and commercial debt. People and businesses who were deeply in debt when price deflation occurred or demand for their product decreased often risked default. Many drastically cut current spending to keep up payments, thus lowering demand for new products. Businesses began to fail as construction work and factory orders plunged.
Massive layoffs occurred, resulting in US unemployment rates of over 25% by 1933. Banks which had financed this debt began to fail as debtors defaulted on debt and depositors attempted to withdraw their deposits en mass, triggering multiple bank runs. Government guarantees and Federal Reserve banking regulations to prevent such panics were ineffective or not used.
Bank failures snowballed as desperate bankers called in loans which the borrowers did not have time or money to repay. With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending.Banks built up their capital reserves and made fewer loans, which intensified deflationary pressures. A vicious cycle developed and the downward spiral accelerated. This kind of self-aggravating process may have turned a 1930 recession into a 1933 great depression. Nicked from Wikipedia.