Causes Of The Stock Market Crash

Most of the nation’s banks also failed because they had to put the depositors money in the stock market to increase but when it crashed people lost most of their money. Many people started to lose faith in the stock market and “you can’t have a healthy economy without confidence in the market.” When banks and businesses started to close many people became unemployed and then people can’t afford food for themselves or for their family. People started to take loans from banks but then couldn’t repay the banks and the banks couldn’t let their depositors withdraw any money because it is all gone or given for loans. From the start of the depression the United States economy was going down day by day. President Roosevelt had closed all the banks for three days and then some banks opened backed up with strict limits on withdrawals.

The stock market is where you buy or sell stocks in a company. A stock market crash is when stocks take a big decline in the DOW ( Dow Jones Stock Average). In the nineteen twenties the DOW hit an all time low with a decrease of ninety percent. The reason why the stocks fell were because twelve point nine million dollars in stocks were sold on just one day. That’s three times the amount sold on any other normal day.

CLOSING STATEMENT: although, … Businesses were also affected by the Stock Market Crash. Many businesses were already struggling so the crash hurt them even more. “With money scarce, banks and investors were suddenly unwilling or unable to provide industry with the money it needed to gr... ... middle of paper ... ...oblems here in the United States started happening overseas. There was a high tariff put on products that were needed to be exported to other countries which caused more harm to other economies. It is easy to see that the Stock Market Crash was a horrible event for America.

This speculation and the resulting stock market crashes acted as a trigger to the already unstable U.S. economy. Due to the misdistribution of wealth, the economy of the 1920's was one very much dependent upon confidence. The market crashes undermined this confidence. The rich stopped spending on luxury items, and slowed investments. The middle-class and poor stopped buying things with installment credit for fear of loosing their jobs, and not being able to pay the interest.

Although this day is considered the trigger to the massive economic fallout, the American and global economies had been in turmoil for six months prior to Black Tuesday, and many other factors contributed to what’s known as the worst economic crash in modern history. With few regulations on the stock market in the years leading up to the Great Depression, investors were able to buy stocks on margin, only requiring them to put down ten percent. This caused for wild speculation, and many people funneling their life savings into the stock market, which led to artificially high prices. After Black Tuesday, many people began to believe that the banking system in America was going to fail. Thousands flocked to the banks to withdraw their money.

Once Recession ended the GNP went up 7.9 percent in 1939. (Www.english.uiuc.edu) tells us that besides ruining many thousands of individual investors, this precipitous decline in the value of assets greatly strained banks and other financial institutions, particularly those holding stocks in their portfolios. Many banks were consequently forced into insolvency; by 1933, 11,000 of the United States' 25,000 banks had failed. The failure of so many banks, combined with a general and nationwide loss of confidence in the economy, led to much-reduced levels of spending and demand and hence of production, thus aggravating the downward spiral. “The result was drastically falling output and drastically rising unemployment; ... ... middle of paper ... ...its were contracting it; The Fed's inaction was the reason why the initial recession turned into a prolonged depression; The economy continually sank throughout Hoover's entire term.

However these were only the effects seen on a macroeconomic level. Throughout America millions of people found themselves homeless as the housing market began to collapse upon itself. These evictions and foreclosures were a major contributing factor the failure of many businesses, which were dependent on consumer spending for their revenues (Allen 198). The failure of these businesses led to a huge decline in consumer wealth that is estimated to be in the trillions of US dollars. By 2008, due to the failures of large financial institutions, there were severe liquidity problems within the US banking system.

Besides wiping out the savings of thousands, it hurt commercial banks that had invested heavily in corporate stocks. It also caused a loss of confidence in the market prolonging the depression. The downturn began slowly and almost unnoticeably. After 1927, consumer spending declined and housing construction slowed. Inventories piled up, and in1928 and 1929 manufacturers began to cut back on production and lay off workers.

Those who didn't put their money in the stock market were judged insane or incompetent. However, the same formula that generated all of the profit would eventually be the cause of “Black Thursday”. Thursday, October 24, 1929 has the unpleasant honor of being called “Black Thursday” because it was on this day that the New York Stock Exchange crashed, indicating the end of the "Roaring Twenties" and the beginning of the Great Depression. On Black Thursday, the stock market nearly totally collapsed as millions of people began withdrawing money in fear of losing it all. The following Monday the stocks dropped once again and on Tuesday a record 16,410,030 shares were sold.

The financial crisis otherwise known as the ‘credit crunch’ of 2007 to the present was triggered by a liquidity shortfall in the US banking system. Hamid Varzi said “The US economy, once the envy of the world, is now viewed across the globe with suspicion.” It has resulted in the bailout of banks by national governments, the downturns in stock markets around the world and the collapse of large financial institutions. It has also affected the property markets severely resulting in many evictions and foreclosures. Many economists have even considered it to be the worst financial crisis since the Great Depression in the 1930s. The crisis has contributed to the failure of key businesses, substantial financial commitments incurred by governments, declines in consumer wealth estimated in the hundreds of billions of US dollars and a significant decline in economic activity.