More than a half-century after the fact, there is no consensus on that caused the Great Depression. The one thing that is really known about the Great Depression is that it had many under lying causes (McElvaine 26). Speculation in the 1920's caused many people to buy stocks with loaned money and the used these stocks as collateral for buying more stocks. Broker's loans went under $5 million in mid 1928 to $850 million in September of 1929. The stock market boom was very unsteady, because it was based on borrowed money and false optimism.
President Hoover stated, “…the crisis has been isolated to the stock market itself.” (Docs Hoover). The market crash proved this confidence to be wrong. The rich stopped spending on luxury items, and the middle and lower classes stopped using credit in fear of losing their jobs and defaulting on their loans. As a result, industrial production fell by nine percent causing people to lose their jobs and default on loans (Galbraith 42). Industries started to fall apart around the automobile and radio industries.
In a five time span Americans salary did not equal to their contributing. On the other hand, the Americans were squandering more than what they made financially. Because the America people were concise on cash and credit they stop investing money in the economy. Under those circumstances real estates became stagnant; additionally, working people were laid off due to less productive in the manufacturing plants (p.692). Although the stocks rise 40 percent between 1928 and 1929 lenders succumbed to paroxysm behavior.
There were many elements that led to the Great Depression like the stock market crash, bank runs, the dust bowl, and the new deal. The Great Depression was an economic downturn between 1929-1939. Many people lost their jobs and did not have enough money to keep a roof over their head. Only the rich could manage while the unfortunate grieved. Both the rich and poor were petrified, and the rich even concealed their money so no one could take it from them.
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.
In response to its economic difficulties, the United States set up even higher trade barriers with other nations, causing more trouble within the nation. Many of the working class lost their jobs, and since these people did not have savings, they were in big trouble. Unemployment grew to 13 million by 1932 as the country quickly spiraled into a catastrophe. The Great Depression had begun due to the maldistribution of wealth, a bad economy based on over confidence, and the irresponsible erratic of the “bull” stock market.
The Stock Market crash happened on October 29, 1929 and the Great Depression started in 1929 and ended in 1939. In the end of September and the beginning of October stock prices began to decrease. The crash was caused by the nervous investors which sold 16.9 million stocks on the New York Stock Exchange in one day. Many businesses invest most of their money in the stock market to make more money, but when the stock market crashed, so then businesses had to shut down because they have no money. 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.
Speculators who borrowed money from the banks to buy their stocks could not repay the loans because they could not sell stocks. This caused many banks to fail. Since bank deposits were uninsured before the 1930s depositors' their money, which in many cases was all that many people had. The stock market crash intensified the course of the Great Depression in many ways. Besides wiping out the savings of thousands, it hurt commercial banks that had invested heavily in corporate stocks.
The stock market crash during the 1920s, stock prices far exceeded their real value. Many stock buyers bought stock on boundary, or on money borrowed from the stock brokers. When stock prices fell many investors with margin accounts were forced to sell, driving prices down even further. Stock prices began to fall in September 1929, but in October 29 so called “Black Tuesday”, was the worst day in stock history, the stock market on that day, the prices drop dramatically. When the economy collapsed with it, people everywhere lost their jobs and homes.
Even though it first happened in America, other parts of world were also involved such as Australia, Canada, China, France, and Germany etc. During the Great Depression, the number of people unemployed increased, causing a lot of people to be jobless. Personal income, tax revenue were greatly affected. Many people thought that the cause of the Great Depression was started by the stock market crash on October 29, 1929. Truth is, it was a misconception.