The Causes of the Great Depression :: American America History

The Causes of the prominent DepressionSince the beginning of the Industrial variation early in the nineteenth century the United States ad experience recessions or panics at least every twenty years. But no(prenominal) was as severe or lasted as long as the Great Depression. Only as the economy shifted toward a war mobilization in the late 1930s did the grip of the depression fin bothy ease. Stock prices had been ascending steadily since 1921, but in 1928 and 1929 they surged forward, with the average price of declivitys rising all over 40 percent. The melody market was totally unregulated. Margin buying in particular proceeded at a feverish pace as customers borrowed up to 75 percent of the purchase price of stocks. That easy credit lured to a greater extent speculators and less creditworthy investors into the stock market. The Federal Reserve board warned element banks not to lend money for stock speculation because if prices dropped, some investors would not be able to p ay back their debts. No one listened. The stock market began sliding in early September, but people ignore the warning. Then on stark Thursday (October 24, 1929) and again on black Tuesday (October 29, 1929) the ball dropped. More than 28 million shares changed hands in demented calling. Overextended investors, suddenly finding themselves in heavily in debt, began selling their stocks. many an(prenominal) found that no one would buy anything at any price. Overnight, stock values fell from a peak value of 87 one thousand million dollars to 55 billion dollars. The crash was felt far beyond the trading floors. 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 prey 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. It also caused a loss of confidence in the market prolonging the depression. The downturn began slowly and virtually 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. Reduced income and buying power in turn reinforced the downturn. By the summer of 1929 the economy was clearly in a recession.