Causes of the Great Depression
October 29, 1929 is often known as the start of the Great Depression. Over a two day period the stock market lost over 24% of its value. The 1920s were known as the roaring twenties because of the extreme prosperity in America. As the stock market soared, investors put their life savings in the stock market and borrowed from brokers to take advantage of the stock market boom. From 1920 to 1929 many stocks more than quadrupled their worth. They increased in value not because of corporate production and profits, but rather because of speculation of future increase in market values.
Everything came to a halt on October 29, 1929 also known as Black Tuesday. Two other days that were terrible dates for investors were Black Thursday (October 24, 1929) and Black Monday (October 28, 1929). It took 27 years for the stock market to recover and get back to the levels it was at before the market crashed.
After the stock market crash and throughout the 1930s over 9,000 banks failed. The banks that did not fail were not as willing to create new loans. This led to less and less spending. With people spending less money businesses began to fail also. There was a reduction in the work force and many people lost their jobs. The national unemployment rate rose above 25%.
In 1930 the government created the Smoot-Hawley Tariff. This tariff charged high taxes for imports. It was meant to help protect American companies. This led to foreign countries trading less with American companies.
In the Mississippi valley 1930 there was a drought so large that many people could not pay their taxes and debts. Many had to sell their farms for no profit. The drought was not a direct cause of the great depression but it did contribute to the financial hardships in America. During the drought the Mississippi valley was nicknamed the Dust Bowl.
Stock Market in the 1920s
One major of the stock market crash was investment practices in the 1920s. Investors would buy borrowed money from brokers. The brokers would get this money from banks. When the stocks failed, investors then defaulted on their loans. When this happened the money was permanently lost.
In the 1920s stock prices rose steadily. The Dow Jones Industrial Average, as today, was the most used tool to gage how well the stock market was doing. The Dow is a measure based on stock prices of 30 representative large firms who trade on the New York stock exchange. The Dow reached a high of 381 points. This was nearly 300 points higher than it had been 5 years before this.
Causes of the Stock Market Crash
Many Americans bought stocks and bonds to take advantage of the market. Many people began buying on margin. This means paying for a small percentage of the price of the stock and borrowing the rest of the cost. When stocks started to decline people who had bought stocks on margin could not pay off their loans.
With many people and investors losing money the economy started to slow down. Many people stopped buying expensive items. This affected the companies and workers who produced these items. This was the beginning of the great depression.
I cant imagine what it must have been like living during the great depression. The great depression was not good due to the stock market crash. I think that if the Stock Market didnt crash no businesses or banks would have failed and many people wouldnt have lost their jobs. These people wouldnt have had to buy on margin. I also think that if stocks didnt fail then investers wouldnt have had to not pay their loans. By researching all of this information about the great depression and the stock market crash i would have to say that i am glad to be living in this time period and not back then when the stock market crashed and caused the great depression.
Comments
Very well done Bailey!