What were the causes of the Stock Market Crash of 1929?
During the 20's the stock market was booming. The value of stocks continued to climb, and people began to think it would never fall. Prior to this time period, the stock market was only played by the rich. Because there was so much money to be made, common people began to play the sock market with money borrowed from banks. A stock is when someone buys a small share of a company. It terms, you are like an owner almost. A few causes were buying on credit, overvalued stocks, buying on margin, over production, and no government regulation. On October 24, 1929: A day known as "Black Thursday". On this day the stock market lost 11% of its value. People began to panic immediately started to trade in all their stocks. This was a day of total chaos. October 28, 1929: "Black Monday". Newspaper articles caused investors from around the country to join the panic and trade in their stocks. The market lost an additional 13% of its value on this day. October 29, 1929: "Black Tuesday". A record breaking amount of stocks were traded in on this day, a grand total of 16 million. The market dropped another 12%. In the months and years to follow, the stock market continued to depreciated in value until July 8, 1932, when the market had reached an all time low of an 89% total loss rate. From that day on, the market began a slow path to recovery. Previously about a decade earlier, Charles Mitchell had saved the stock market by investing his money in the stock and caused the numbers to rise. He, along with JP Morgan, tried to save it again, but it didn't work. Mr. Mitchell lost everything that day.
Buying on Credit -
During the 20's, buying on credit was a new fad. The system worked in a similar way that credit cards work now. There were no real limits on how much people could borrow, this allowed people to acquire lard amounts of debt. Because people were in debt they stopped buying things, and distributing money into the economy. This contributed greatly to the depreciation of stocks' value.
Overvalued Stocks/ Over Speculation-
Stocks were being sold for much more than they were actually worth. Investors expected the value of stocks to continue to increase, never considering that eventually the upward trend would cease. Speculators were the ones who quickly bought and sold stock to make money. This also led to low profits.
Buying on Margin -
Buying on margin allowed more middle class people to invest large amounts of money into the stock market. They would take out "loans" from investors with the intentions of paying them back with interest when they started to profit from their investments. The fact that so much of the stock market was supported by borrowed money made it very unstable. Another form of buying on margin allowed for investors to pay just 10% of the value of the socks they purchased at the time of purchase, and pay installments for the other 90%. The stock market was not likely to continue to be stable when so much was money being borrowed from it. When the stock market was only the rich people, it was more stable than with all the middle class people.
Over Production of Crops-
In the 1929, the United State had a very productive agricultural year. We had an extreme over abundance of wheat, which caused the price per bushel to drop drastically. When the price of wheat dropped, it greatly affected people who had invested in wheat stock, as well as farmers. The drop in value of wheat stocks greatly contributed tot he stock market crash of 1929 as a whole.
No Government Regulation -
The government had not set good enough regulations for banks. No requirement for minimum capitol to start a bank had been made. No limit to how much banks could lend out had been set. When the market crashed, banks that had a lot invested into stocks were wiped out.
After Effects -
The stock market crash greatly contributed to the Great depression. Not only did the crash affect the US, it affected many countries all around the world. The Senate organized the Pecora Commission to study the causes of the crash. The next year, Congress passed the Glass-Steagall Act to separate commercial banks from investment banks.
What were the causes of the Great Depression?
Stock Market Crash-
This was one of the major causes that led to the Great Depression. A couple of months after the crash in October, stockholders had lost more than $40 billion. Though the stock market regained some of its losses, it was not enough by the end of 1930.
Bank Failures -
During the 1930s, over 9,000 banks failed. Deposits were uninsured and as banks failed people lost their savings. The banks that survived were unsure of the economic situation concerned for their survival stopped being as willing to create new loans.
Reduction in Purchasing Across the Board -
Everyone stopped buying items because they feared that more economical problems would occur. This led to a reduction in numbers of items made and reduced the workforce. People started losing their jobs and were unable to pay for items they had bought. They bought through installment plans.
American Economic Policy with Europe -
Businesses began falling. Government created the Smoot-Hawley Tariff to protect American companies in 1930. It charged high tax for imports. This led to less trade between America and other countries.
Drought Conditions -
Drought caused people not to pay their taxes and debts. People had to sell their farms for no profit. Era named the Dust Bowl. Many dust storms destroyed parts of the agricultural production.
What impact did the stock market crash and Great Depression have on the lives of the people in the United States?
Children would write to the president for help such as shoes, clothes, and money. Boxcar Kids were children that ran from home and lived on the railroads. Life at home would be very sad, so they ran away from home. The girls would dress like boys for safety. Men and women were affected differently. The men felt like failures, because they usually supported the family, but they couldn't help their family in this time. 1.5 million husbands left their wives during the Great Depression. Women felt as if their household jobs were enhance. Many people committed suicide. Once everyone started to lose their jobs, there was not a lot of money for people to spend on food. Usually family lost their homes etc. People who were to marry and divorce had to wait. The birth rates dropped because people couldn't afford to support more people. It tested how strong some families were by bonding them together or tearing them apart. The corn prices dropped drastically. Many of the farmers were burning their corn to stay warm because coal was too expensive. They had to live off the land and survive. The people had to barter for items that they needed such as sugar, flour, etc. Many of the girls wore flour sack clothing. Some of the wealthy people lost money, but it didn't affect them because they were so rich. They didn't always notice that others were suffering. They went on with their daily normal life. Some of them tried to help out the poor people. Some of the wealthy people flaunted their money more during that time. The Hoovervilles was a town made from any kind of material found. The homeless were living wherever they could which included a park bench and under newspapers. More and more people were looking form jobs and because of that most of the jobs were given out to the whites. Women were usually fired due to the fact the people thought they were taking jobs from the men. Getting a job was essential to living at the time. The drought and over-plowing had an impact on the farmers. This lasted for 8 years.
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