Causes of The Great Depression

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Warning signs appear

By the middle of 1929, consumer spending became less, the new construction was slowing down and the automobile sales were coming to an end. People borrowed billions of dollars to buy stock on margin and that was a very big problem, as more money was flowing in the country. (Buying on margin is a method by which investor put up only a portion of the purchase price for stock shares and borrow the remainder from their brokers.) Even when the prices were high, the Americans kept on investing on stock.

The Federal Reserve Bank may have helped with the disaster of economic depression as it has inflated money supply during 1920’s. Then after the Federal Reserve was aware it warned its member banks not to lend money for speculative purposes.

The stock market crashes

Stock shares began to be sold in large quantities; everyone wanted to sell their stocks. People were desperate to sell their stock all over the country. A group on bankers gathered together and after the short meeting they had, they announced they are going to buy the stock shares on the market. Bankers bought those stocks with the millions of dollars their banks produce. There were some problems when it came to agreements on prices though but after a day or two the public confidence was returned. President Hoover reassured his nation by saying “The fundamental business of the country – that is, the production and distribution of goods and services – is on a sound and rich basis.”

The business of the country was not actually sound based. The economists were saying factories were producing more goods than even workers or consumers will be able to buy, in other words, the consumers would not be able to afford. The supply was clearly on surplus and the d...

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...om Britain, despite South Africa still being a dominion.

Fearing that this was an unsafe decision, investors took back the large amounts of cash to be deposited out of the country. They also speculated that if South Africa left the standard, the exchange rate would fall and therefore make greater and more returns on their savings. This crippled the economy even further and despite legislation to limit the outflow of capital from the country, money kept leaving. The support that the government had before eventually decreased as Hertzog stood firmly and refused to leave the gold standard. Pressure mounted and in November 1932 the government finally gave in. This had the desired result. Almost immediately the gold price rose, goldmine shares climbed and there was an injection of money into the country and thing were partially and slowly going back to the normal state.

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