Causes of the Great Depression and the Stock Market Crash
The Great
Depression was the longest and worst economic collapse in
the history of the modern industrial world, which was initiated
primarily by the stock market crash of 1929. During 1920's, the
United States experienced and outstanding period of prosperity.
However, the economy began to decline in 1928 when production,
sale of goods, and employment decreased drastically.
On October 24, 1929, hailed as Black Thursday, the stock market
crashed, triggering the Great Depression. The stock market crash
did not actually cause the Great Depression, but rather
contributed to the disaster of the Great Depression, which was
caused by a number of serious economic problems.
Although the "Roaring Twenties" appeared to be a prosperous
time, income was very unevenly distributed. Businesses prospered
tremendously, but the workers received a relatively small share
of the wealth produced. At the same time, taxes were lowered for
the upper class. As a result of these trends, the top .1 percent
of American families had an income equal to that of the bottom
42 percent. World War I also weakened the economy.
After World War I, the United States served as the world's
banker and primary creditor as Europe struggled to pay war
debts. Bankers lent too heavily to borrowers in Europe and made
the international banking structure extremely unstable by the
late 1920s.
Farmers were already in a depression in the 1920s from World War
I. Farmers expanded their output during the war when demand was
high, but after the war they found themselves competing in an
over-supplied international market. Prices fell and farmers were
unable to make a profit. The stock market crash of 1929
specifically had an impact on the Great Depression. Speculation
in the 1920s caused many people to invest in stocks with loaned
money (credit) and used these stocks as insurance for buying
more stocks. But in the later 1920s, stock investment began to
decline due to lack of confidence. In late October, prices began
to drop rapidly and investors became fearful and began selling
stocks.
On Black Thursday, October 24, 1929, the stock market crashed
and major corporations suffered huge losses. Thousands of banks
were unable to stay open since investors were unable to pay back
the loans they took in the 1920s. In 1932 and 1933, stocks hit
rock bottom, about eighty percent lower than they had been in
their highs in the late 1920s.
The demand for goods declined because people didn't have any
confidence in the economy and felt poor. These trends caused
America's economy to sink into the worst depression it had ever
seen. The stock market crash inhibited the ability of the
economy to recover from the underlying problems that affected
the economy including unevenly distributed wealth, agricultural
depression, and banking problems.
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