In 1929 the New York Stock Exchange crashed. As a result, world grain prices plummeted, and the framework supporting Hungary's economy buckled. Hungary's earnings from grain exports declined as prices and volume dropped, tax revenues fell, foreign credit sources dried up, and short-term loans were called in. Hungary sought financial relief from the League of Nations, which insisted on a program of rigid fiscal belt-tightening, resulting in increased unemployment. The peasants reverted to subsistence farming. Industrial production rapidly dropped, and businesses went bankrupt as domestic and foreign demand evaporated. Government workers lost their jobs or suffered severe pay cuts. By 1933 about 18 percent of Budapest's citizens lived in poverty. Unemployment leaped from 5 percent in 1928 to almost 36 percent by 1933.

As the standard of living dropped, the political mood of the country shifted further toward the right. Bethlen resigned without warning amid national turmoil in August 1931. His successor, Gyula Karolyi, failed to quell the crisis. Horthy then appointed a reactionary demagogue, Gyula Gombos, but only after Gombos agreed to maintain the existing political system, to refrain from calling elections before the parliament's term had expired, and to appoint several Bethlen supporters to head key ministries. Gombos publicly renounced the vehement anti-Semitism he had espoused earlier, and his party and government included some Jews.

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Source: U.S. Library of Congress