Caused stock market crash during great depression

Posted: Smartly Date of post: 16.07.2017

The Stock Market crash was a result of various economic imbalances and structural failings. These are some of the most significant economic factors behind the stock market crash of In the s, there was a rapid growth in bank credit and loans in the US.

Encouraged by the strength of the economy, people felt the stock market was a one way bet. Some consumers borrowed to buy shares.

caused stock market crash during great depression

Firms took out more loans for expansion. Because people became highly indebted, it meant they became more susceptible to a change in confidence. When that change of confidence came in , those who had borrowed were particularly exposed and joined the rush to sell shares and try and redeem their debts. Buying on the margin. Related to buying on credit was the practise of buying shares on the margin. This enabled more money to be put into shares, increasing their value.

They had made huge profits by buying on the margin and watching share prices rise.

The Stock Market Crash of |

But, it left investors very exposed when prices fell. These margin millionaires got wiped out when the stock market fall came. It also affected those banks and investors who had lent money to those buying on the margin.

A lot of the stock market crash can be blamed on over exuberance and false expectations.

In the years leading up to , the stock market offered the potential for making huge gains in wealth. It was the new gold rush. People bought shares with the expectations of making more money. As share prices rose, people started to borrow money to invest in the stock market. The market got caught up in a speculative bubble. The problem was that stock prices became divorced from the real potential earnings of the share prices.

Yet, those who questioned the value of shares were often labelled doom-mongers. This was not the first investment bubble, nor was it the last. Most recently we saw a similar phenomena in the dot com bubble.

In March , the stock market saw its first major reverse, but this mini-panic was overcome leading to a strong rebound in the summer of By October , shares were grossly overvalued. When some companies posted disappointing results on October 24 Black Thursday , some investors started to feel this would be a good time to cash in on their profits; share prices began to fall and panic selling caused prices to fall sharply.

Financiers, such as JP Morgan tried to restore confidence by buying shares to prop up prices. But, this failed to alter the rapid change in market sentiment. The bull market had been replaced by a bear market. The s saw great strides in production techniques, especially in industries like automobiles. The production line enable economies of scale and great increases in production.

However, demand for buying expensive cars and consumer goods were struggling to keep up. Therefore, towards the end of the s many firms were struggling to sell all their production.

This caused some of the disappointing profit results which precipitated falls in share prices. In , there were already warning signs from the economy with falling car sales, lower steel production and a slowdown in housing construction. However, despite these warning signs, people still kept buying shares. Even before , the American agricultural sector was struggling to maintain profitability.

Many small farmers were driven out of business because they could not compete in the new economic climate.

Better technology was increasing supply, but demand for food was not increasing at the same rate. Therefore, prices fell and farmers incomes dropped. There was occupational and geographical immobilities in this sector, and it was difficult for unemployed farmers to get jobs elsewhere in the economy. Before the Great Depression, the American banking system was characterised by having many small to medium sized firms.

America had over 30, banks. The effect of this was that they were prone to going bankrupt if there was a run on deposits. In particular, many banks in rural areas went bankrupt due to the agricultural recession. This had a negative impact on the rest of the financial industry. Between and , 5, banks collapsed.

If the question was — What caused the Great Depression?

Wall Street Crash of - Wikipedia

This is because some believe the Stock market crash was only partly to blame for the Great Depression although it was a significant factor in precipitating it. You should mention the FED artificially reducing interest rates. That is what lead to the overabundance of credit. Same as the recent stock market crash.

caused stock market crash during great depression

How can one tell the validity of this site? Are you actually retarded or something? The Great depression was a direct result of the Wall Street Crash. That is all there is to it really. The instigator of the Wallstreet crash of was the FED. It was a planned crash. By allowing the people to borrow money to buy stocks and bonds.

In the FED announced that the money supply should be contracted because of worries for inflation, and as a consequence the banks from which people had borrowed money for stocks requested the money to be paid back.

This is of course not the only reason for the crash, the whole economy of the USA was in a boom because of too much money creation intentionally. This always creates first booms and then busts.

Nowadays the situation is much more grave then ever because the Western world and most of the rest of the world also for that matter are more or less drowning in borrowed money, too much to pay back.

The EU is on the brink of disaster, so is the USA and so are many of the Bric nations. Facebook RSS Follow economicshelp Basket. Tejvan Pettinger November 5, economics , stock market. Credit boom In the s, there was a rapid growth in bank credit and loans in the US. Buying on the margin Related to buying on credit was the practise of buying shares on the margin.

What caused the Stock Market Crash of that preceded the Great Depression? | Investopedia

Irrational exuberance Earning per share rose from 20 to a peak of Mismatch between production and consumption The s saw great strides in production techniques, especially in industries like automobiles. Agricultural recession Even before , the American agricultural sector was struggling to maintain profitability.

Weaknesses in the banking system Before the Great Depression, the American banking system was characterised by having many small to medium sized firms. October 12, at 6: February 23, at March 2, at 1: March 8, at 7: Where would I go to find information on the Stock Market Crash of ?? April 8, at 2: March 15, at 1: The History of Currency: From Shells to Gold to Fiat Paper The Frugal Saver. Factors Affecting the Stock Market Economics Blog. November 29, at 6: February 4, at 8: May 15, at 2: August 19, at 6: This is of course not the only reason for the crash, the whole economy of the USA was in a boom because of too much money creation intentionally the 29 crash and ensuing depression has many similarities to the current depression.

December 7, at 5: January 17, at 1: Year 11 SAC s USA huntinghistory.

Stock Market Crash of October - Social Welfare History Project

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