The Causes of the Great Depression

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.

There was absolute chaos when people heard that the stock market had crashed, which led to bank runs. People did not trust banks anymore and wanted to get their money so they could make sure their money was in safe hands. When one of the first bank runs occurred in Nashville, Tennessee, this kick started a movement of bank runs. The banks only carried a portion of the depositor’s money and would provide the rest to borrowers. So when people came to the banks for their money, the banks did not have all of it.

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. As a result industrial production fell by more than 9% between the market crashes in October and December 1929 (McElvaine 48.) Bibliography: McElvaine, Robert S. The Great Depression. New York: Times, 1984.

Because so many people had bought on margin, the economy suffered from a severe lack of activity, creating a nationwide depression. People also lost their savings, as a result of banks using deposits to buy stocks. Other causes of the crash include over-speculation and overreaction. Over-speculation, the act of valuing

This caused many banks to fail, and shut their doors. Since bank deposits were not insured before the 1930s, depositors’ lost their money, which in most cases was all the money that people had. The stock market crash had only deepened the course of the Great Depression in many ways. Not only wiping out the savings of thousands. It hurt a lot of commercial banks that had invested in corporate stocks.

The Stock Market Crash triggered a banking crisis, business failures and trouble overseas. American banks were affected most by the Stock Market Crash. Many banks had to go out of business which had an immense impact on American people. “Worse, many banks had themselves invested, directly or indirectly, in the stock market. They had purchased stock in companies whose shares were now crumbling in value” (Ayers 678).

Big banks were in trouble as well, many investing recklessly in the stock market then losing it all when the stock market crashed in 1929. The fourth factor was Americas position in the international trade market. In the late 20's, Europe's demand for American goods began to decline, partly because their industry was becoming more productive and partially because their economy was destabilized from the international debt structure that emerged in the aftermath of WW1. The international debt structure was a fifth and final factor contributing to the Great Depression. At the end of the war in 1918, all the European nations that had been allied with the US owed large sums of money to American banks and could not repay them with their shattered economies.

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.

Fearing that banks would close, customers lined up to withdraw their money. Since banks rarely keep enough cash on hand to pay all their customers at once, many banks shut down. The Great Depression was the time of great economic hardship, had begun. As banks failed or cut back on loans to businesses, factories produced fewer goods and there... ... middle of paper ... ... not return until United States entered World War II in 1941. After World War I, the price of food began to drop causing some dramatic effects on the United States economy.

Many homeowners were unable or unwilling to pay, which caused banks to lose money and merge with other banks. As Mark Zandi on ABC news stated, “The last time we saw so many homeowners with home values that were worth less than the amount of mortgage they owed was back in the Great Depression”. During this time, another bank failure was the financial panic of the stock market. The stock market started to plummet like it did during the Great Depression, and investors became very worried. Andrew Ross Sorkin of ABC news stated, “… this is the time to be investing, because this is when people make money”.