Homeless starving families roaming the streets, billions of dollars lost never to be returned, and darkness and depression encompassing all aspects of life. This may sound like an impossible nightmare, but in reality, millions of people suffered through these events thinking only of survival and how to get through the next day. What could cause such horrendous events as these? Well, all of this was a result of what is known as the Stock Market Crash of 1929. In brief, the economy of the United States of America failed due to flaws within the market, and misunderstandings of its risk.
Moreover, poor economic policies caused depression and financial turmoil and took years of political reform to heal.
The Stock Market Crash had a large impact on America and its citizens. After the Crash, many people were scared to use stocks again because of the thought of this horrible event happening again. Soon many people wouldn’t have to be afraid anymore. In the 1920s, things were really unstable in the US and around the world.
With the rapid increase in industrialization, which fueled the economy, combined with the many technological improvements had leading economists believing the growth would continue.
During this inflation period, wages increased along with consumer spending, and stock market prices were on the rise. Most people wanted to take advantage of the rising prices, which put billions of dollars into the stock market, and people were buying on margin (buying stocks with borrowed money, then using the earnings to pay back the loan).
The number of dollars put into the stock market created unsecured consumer debt and left the market unbalanced. Many investors wanted to make a lot of cash, so they decided to invest their life savings, mortgage their homes, and cashed in their ‘safer’ investments like bonds, and bank accounts. The rising prices had some economic analysts warning of a coming correction. Many companies and banks, eager to increase their profits, began to speculate dangerously with their investments. In late October 1929, the buying craze slowly decreased, and the selling of stocks was even crazier.
On Tuesday, October 29, 1929, the United States stock market suddenly and completely collapsed. This event is known as Black Tuesday and is attributed by many historians to be the start of the worst financial crisis in U.S. history, The Great Depression. The Great Crash itself had a devastating impact. Hundreds of banks failed, and because bank deposits were uninsured, their depositors lost some or all of their money. “Frightened customers drew their savings from solvent banks, forcing them to close.”And that was just the beginning. Government’s response to the Great Depression changed the lives of non-elite members of society. It changed them negatively at first. Herbert Hoover’s strategies for fixing the economy failed and drove these working class people even farther into debt and poverty.
The unemployment rate was so high that some out of work people were so poor that they resorted to living in boxes, and packing crates, and the only meals they ate were obtained courtesy of a local soup kitchen. Things began to look up when FDR took over as president. His plans for stimulating the economy worked, and in a big way. The federal agencies that he instituted provided millions of jobs, and poured mass amounts of money back into the nation’s economy. The Great depression could have been avoided, firstly overproduction. Factories and farms were producing more goods than the people could afford to buy. The problem with overproduction was that no one was looking forward to what was to come.
They were on such a high with the number of products they were selling (washing machines, dishwashers, cars, wheat, meat, and other farm goods) no one noticed that they were making extensive amounts. It was getting easier and easier to produce products because assembly line production and stock market prices were high. As a result, prices fell, factories closed and workers were laid off. Prices for farm products also fell, as a result, farmers could not pay off bank loans and many lost their farms due to foreclosure. Secondly, buying on credit, 1920’s motto was “buy now, pay later”, the first mistake because most people couldn’t afford to pay later. Buying on credit was a new concept, and not everyone understood it. Almost all people didn’t own the majority of things they had, resulting in Canada falling helplessly into debt.
Then creditors repossessed goods and left some with nothing. Buying on credit should have only been available to people who have a well-paying job and know how a fact that they will be able to pay the money back. Thirdly, the stock market crash, also known as “Black Tuesday”. Too many people were getting loans to buy shares (buying on margin), so when the stock market prices went down, people couldn’t pay back their loans. This caused people to sell shares. The government needed to stop the bubble in stock prices from happening. They could have outlawed (or at least regulated) the margin buying and some of the other abuses that were pushing up stock prices. Overall the Great Depression was a terrible period of time, that definitely could have been avoided if anyone were looking into what was to come.
The Stock Market Crash had a large impact on America and its citizens. After the Crash, many people were scared to use stocks again because of the thought of this horrible event happening again. This event could have been prevented if people just understood how stocks worked and that they shouldn’t put everything into stocks. As well, as the huge effect, the crash had on many Americans during that time, many people lost their homes and all their money. To conclude, the Stock Market Crash was a horrific event in the 1920s and many people suffered because of it.