Economical Events That Lead Up To The Great Depression Essay

On October 29, 1929, the stock market crashed. Not only did millions of investors lose their money but banks lost all of the money they had invested that their customers had given to them. To make the problem worse is that the people who had remaining money in the banks tried

These periods of financial panics along with the inelastic money supply had long beleaguered the country. Bank failures, business bankruptcies, and unstable economic development were results of the lack of a central banking system (Federal Reserve System 8th ed. pp. 6-7). The Panic of 1907 was a bank run of epic proportions that exacerbated the problem. Depositors withdrew their savings from the second and third largest banks in the country. These banks were not able to generate enough funds to cover the demand and subsequently closed their doors. Their closings rapidly spread fear across the country leading to one of the largest runs on the banks the nation had ever witnessed (Schlesinger pp. 41).

On account of the Wallstreet stock market crash which took place in 1929, the nation was put in a huge financial stress. Many people rushed to banks to take out their savings but once they got there, there was no money left. About eight-hundred banks closed and nine million bank accounts crashed (ABC News). Every cent that a family ever

People began buying things such as cars and appliances on credit. Many people earned less money than needed to live a comfortable lifestyle. Businesses were letting people with lower incomes buy things on credit. Unfortunately the stocks rose faster than the value of the companies they represented. When the stock market collapsed, these people did not have the money to pay back what they owed. This resulted in financial ruin. Before the stock market crash investors traded about sixteen million shares on the New York stock exchange each day. After "Black Tuesday", billions of dollars were lost wiping out thousands of investors. Had most of those investors sold their stock the day before the crash, they would have received a large profit. The 1929 crash uncovered another problem in the United States. The nations banking system was in trouble. In the 1920's thousands of new banks were opened, however, most lacked adequate money in reserves. Between 1923 and 1929, banks across the country failed daily, but the general rising prosperity hid these failures. The crash made a bad situation even worse, and banks failed at a more rapid rate.

Secondly, speculators would buy short-term loans to purchase stock and would quickly resell their shares at a higher price to pay off these loans. Thus, many debts went unpaid. Third, the lifesavings of many Americans disappeared because investors were speculating with their money (Keene, 661). Beginning on October 21 and ending on October 29 in 1929, stock prices plummeted drastically. The economic elements during this time caused a lot of panic.

It all began soon after the stock market crash. A severe downturn in equity prices that occurred in October of 1929 in the United States. This severe downturn didn’t occur in a day. It was a problem that developed during a two-week period. Even though it’s impossible to list all the causes of the Great Depression some just stand out. With the stock market crash being one of the major causes that led to the Great Depression. This time can be described as the time when Stockholders had eventually lost more than $40 billion dollars. At one point they began to regained some of their losses but, it wasn’t enough to keep America from entering the Great Depression.

In the early 1920s, after the close of World War I a couple years earlier, Americans were seemingly prospering in their daily affairs. The nine-year span from 1920 to 1929 was filled with new and stirring changes; inventions, like automobiles powered by gas, innovative household appliances, like radios and vacuums, women’s suffrage, and more were taking off and changing the era. Companies were thriving in what was known as the Roaring Twenties. Stocks and production were greatly increasing too. This rise presented a shot for fortune, but also posed concern. More heavily in the fall of 1929, but even beginning in March, the economy began to plummet. There were secret issues surrounding the reflux of money for stocks and production, thus

Throughout most of the 1920’s there was a large boom in the stock market. By August 1929, there was massive expansion and stock prices reached their peak. In the words of PBS, “A boom took stock prices to peaks never before seen” (PBS 1). However, all good things eventually come to an end. What must have felt like over night, the stock market crashed and this would later be known as one of the most devastating economic downturns in U.S. history. The Stock Market Crash of 1929 was so significant but to this day people question why it occurred, how it affected the public, how the crash was eventually resolved, and how it affected the U.S. economy for decades to come. I hope to analyze information about the Stock Market Crash of 1929 provided by economists, the government, and more to not only discover answers to the questions above, but also understand why, in hopes of preventing another event of this magnitude from occurring again.

During this time of economic growth, the securities market experienced a surge in activity. This was primarily due to investors buying on margin, which is essentially credit, as ratios as high as three to one. This meant that investors were putting down one dollar of capital for every three dollars of stock they purchased. Even though a lot of people during this time made enormous amounts of gains, this still meant that a loss of a third of the value of the sock would wipe them out. This was a huge problem for investors because they were buying stocks in expectation of rising share prices rather than fundamentals. Even with this surge of activity in the securities market, propositions that the federal government should require financial disclosure and prevent fraudulent sale of stock were never seriously followed.

With stock prices quickly descending, the vast majority of investors and families ran to their banks to withdraw what they could out of the banks and their investments to save what money they could salvage before they lost it all. With that happening, the banks and stock markets became financially unstable due to vast amounts of money being taken out. The banks and U.S Stock Market soon after fell and stock prices were at an all time low.

With over 16 million stocks sold on Wall Street, stocks were now almost worthless and money was gone. Billions of dollars were lost, leaving many business owners out of money, or work. Not only did this stock crash hit America, but the whole industrialized world. This was just the major turning point of the long, harsh, downward spiral from 1929-1939 (the Great Depression).

During this time, the banks were robed out of any liquidity. BNP Paribas, a major bank of U.S had to sell its hedge funds to get in some cash. Excessive risk taking by these banks robbed the capital out of the system. Many major banks failed at this time. Even, the banks which were given the status of ‘Too Big to Fail’ also witnessed a major collapse, ruining the financial health of the institutions. Furthermore, the Federal Reserve too granted loans and aid packages to bail-out these banks, which led to magnify the world financial system and the health of the U.S economy. An Expansionary fiscal and monetary policy was adopted.

On October 29, 1929, the U.S. stock market crashed, the day of the crash became infamously known as “Black Tuesday.” The “Great Crash,” otherwise known as the “Wall Street Crash of 1929” and the “Stock Market Crash of 1929” marked the very beginning of the Great Depression. Over 40 percent of all banks (approximately 10,000) failed in the next two years, resulting in losses of over $2 billion. Stocks were devalued by more than 80 percent, and unemployment went up to almost 25 percent. The information listed is what led up to the crash of the stock market, possibilities to prevent the Great Crash, and what the consequences of the crash were.

The stock market crash occurred on Tuesday, October 29, 1929, also known as Black Tuesday. It was “due to the panic-selling of massive amounts of stocks and shares” (american-historama.org). However, there were several other causes of the crash “including the feeling of optimism and overconfidence during the Roaring Twenties and the economic boom in the era. The rise of American Consumerism led to the overproduction of consumer goods that were attained as a result of easy credit schemes” (american-historama.org). More causes were that “the Stock Market boom and the 'Long Bull Market' led to the system of buying stocks ‘on margin’ with loans from stock brokers. The Fall in demand for consumer products and the unequal distribution of wealth across America were also important causes of the Wall Street Crash as were the weaknesses in the American banking system” (american-historama.org). Another cause came from an economist, H. Parker Willis who blamed “the Federal Reserve System as fundamentally and primarily a cause of the panic of 1929 by permitting the use of banking funds in an unduly large degree and without adequate protection, in promoting speculation" (Klein 326-327). The Federal Reserve was a scapegoat for several people “first for its easy money policy in 1927 and then for its failure to raise interest rates quickly enough in March 1928 and during 1929, despite many urgent appeals for it to do so” (Klein 327). The Fed realized that they made a mistake in this, in

Businesses such as banks started to get overwhelmed because they wanted their money back from all brokers. As a result, brokers needed their money back from all customers. The only way most customers could think to earn the money back was to sell their stocks, and by doing this, they brought down the market and economy even more (Bondi, Baughman, et. al.). The panic continued due to a lack of information given because the prices posted on the ticker fell behind the actual prices of all the exchanges. This left everyone questioning the status of their earnings and where they would end up because of it.