Causes Of The Great Depression
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The stock market crash on October 29, 1929 set in motion a series of events that led to the Great Depression, but in fact, the American economy and global economy had been in turmoil six months prior to Black Tuesday, and a variety of factors before and after that fateful date in October caused and exacerbated the Great Depression.
Click here for facts about the causes of the Great Depression.
False Sense Of Prosperity Before The Great Depression
The 1920s, known as “The Roaring Twenties” marked a time when America was overdependent on production, automobiles were the leading industry, and there was a great disparity between rich and poor. More than 60% of the population was living below poverty levels, while a mere 5% of the wealthiest people in America accounted for 33% of the income, and the richest 1% owned 40% of the nation’s wealth. This uneven distribution of wealth was mirrored in the unequal distribution of riches between industry and agriculture.
Global Crisis And The Great Depression
While America prospered during the 1920s, most of Europe, still reeling from the devastation of World War I, fell into economic decline. America soon became the world’s banker, and as Europe started defaulting on loans and buying less American products, the Great Depression spread.
Speculation And Overleverage In The Great Depression
With only loose stock market regulations in place before the Great Depression, investors were able speculate wildly, buying stocks on margin, needing only 10% of the price of a stock to be able to complete the purchase. Rampant speculation led to falsely high stock prices, and when the stock market began to tumble in the months leading up to the October 1929 crash, speculative investors couldn’t make their margin calls, and a massive sell-off began. While the great rise in the stock market (from 181 points in early 1928 to 381 points in September 1929) was fueled by optimism and false hope, the plunge was flamed by stark fear.
Stock Market Crash Of The Great Depression
On September 3, 1929, the Dow Jones was at a high of 381 points, and on October 29, 1929, it had fallen to 41 points after a week of panic selling.
Bank Failures And The Great Depression
Once the stock market crashed, fearful that banks would fail, millions of Americans began to withdraw their money. Virtually overnight, they put thousands of banks in peril. The more money Americans withdrew, the more banks failed, and the more banks failed, the more money Americans withdrew. By 1933, more than 11,000 of the nation’s 25,000 banks had collapsed.
Lack Of Available Credit During The Great Depression
With massive draws on funds during the Great Depression, banks had no money to lend, and this lack of available credit led to a further worsening of economic conditions.
People Stopped Spending Money During The Great Depression
When the stock market crashed, and the banks failed, and unemployment levels reached higher and higher points, people understandably stopped spending money, which also deepened the economic crisis as demand for products and services ground to a halt.
High Unemployment Rates During The Great Depression
When consumer spending plummeted during the Great Depression, unemployment rose, reaching its highest level in 1933, when 25% of the workforce was idle.
Dust Bowl During The Great Depression
A drought that lasted from 1930 to 1936, known as the Dust Bowl, aggravated the problems of the Great Depression. More than a million acres of farmland were rendered useless because of severe drought and years of overfarming, and hundreds of thousands of farmers joined the ranks of the unemployed.