The Major Causes And Contributions Of The Great Depression

1536 WordsNov 10, 20177 Pages
The Great Depression was a worldwide economic crisis that began in the early 1930s. Many people believe that the Great Depression was caused by the stock market crash. However, this Depression was long anticipated before the “Roaring Twenties” era, when the United States transitioned from an agricultural society to an industrial one. There were many contributions to this severe economic crisis such as the overproduction of crops and technologies, installment plans, stock speculation through buying on margin, bank failures, and the Dust Bowl. The Depression created endless hardships for many Americans, facing unemployment or low wages and consumer debt. The economy today, still encounters speculation, bank failures, and natural disasters.…show more content…
Christina D. Romer, former Council of Economic Adviser, researched the causes of the Great Depression. Romer analyzed that “The Federal Reserve had raised interest rates in hopes of slowing the rapid rise in stock prices,” which also resulted in the decline of purchasing goods. Manufacturers realized the overproduction of goods, which eventually caused many Americans to lose their jobs. Later, the stock market crash also contributed to their loss in savings. Many Americans were severely affected by the Great Depression. In addition to overproduction, stock speculation was another contribution to the Great Depression. Investors believed that buying stock “with the assumption that it can always be sold at a profit,” resulted in the economic catastrophe, the stock market crash of 1929 (“Causes of the Great Depression”). Romer pointed out that investors were able to purchase on margin, meaning they can purchase stocks with a small portion of their money before interest rates skyrocketed. Investors had a mindset that borrowing money to buy stocks would lead to a larger profit that can pay back their debt in full and have extra profits to spend. Unfortunately, that was not the case. They continued to borrow money from banks to buy stocks, eventually stock prices skyrocketed to the extent that it was higher than the stocks’ real worth. In October 1929, the stock market crashed. Investors were forced to sell
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