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Causse of the great depression

Causse of the great depression The Great Depression also called Depression of 1929, or Slump of 1929, began in 1929 and lasted until 1939. It was the longest and most sever depression ever experienced by the industrialized world. Though the United States economy had gone into depression six months earlier, the Great Depression may said to have begun with a catastrophic collapse of the stock market prices on the New York Stock Exchange in October 1929 call the Stock Market Crash of 1929. During the next three years stock prices in the United States continued to fall, until by late 1932 the had dropped 20 percent of their value in 1929 (http://www.britannica.com/bcom/eb/article/0/0,5716,38610+1,00.html). 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. When investors lost confidence, the stock market collapsed, taking them along with it (http://www.bergen.org/AAST/Projects/depression/causes.html). It seemed to good to be true, and it was. The margin of leverage when prices were rising would act in reverse if prices fell. All of the margin buyers would be wiped out quickly. The whole market in 1929 compounded the leverage idea as "investment trust" proliferated. The investment trust existed for the sole purpose of owing stock. It had no assets other than the securities of other companies. This, in turn, sold stocks of its own. By the summer of 1929 businesses were being piled one on top of another (McElvaine 45). The reason for this speculation of the twenties has long been debated. One culprit to blame is the Federal Reserve Board's decision in early 1927 to lower the rediscount rate one-half point to 3.5 percent. The decision was based on the need to save liquidity in the wake of Great Britain’s overvaluation of the pound. This meant easier money at home which made stock speculation easier, yet did not cause speculation (McElvaine 44). Another factor that lead to the Great Depression was shortsighted government economical policies. This meant that the government took no actions against unwise trading and investing. Congress also passes high tariffs that protected American industries but hurt farmers and international trade (http://www.bergen.org/AAST/Projests/depression/causes.html). Looking back many people believe that these tariff increase were a horrible mistake that made the Worldwide Depression worse (McElvaine 32). One of the bigger and most noted reason was the stock market crash of 1929 (http://www.bergen.org/AAST/Projests/depression/causes.html). Prices had been drifting downward since September 3, but generally people where optimistic. Speculators continued to flock to the market. Then, on Monday October 21 prices started to fall quickly. The volume was so great that the ticker fell behind (McElvaine 47). Investors became fearful. Knowing that prices were falling, but not by how much, they started selling quickly. This caused the collapse to happen faster. Prices stabilized a little on Tuesday and Wednesday, but then on Black Thursday, October 24, everything fell apart again. By this time most major investors had lost confidence in the market. Once enough investors had decided the boom was over, it was over. Partial recovery was achieved on Friday and Saturday when a group of leading bankers stepped in to try to stop the crash. But then on Monday the 28th prices started dropping again. By the end of the day the market had fallen 13%. The next day, Black Tuesday an unprecedented 16.4 million shares changed hands. Stocks fell so much, that at many times during the day no buyers were available at any price (McElvaine 48). This speculation and the resulting stock market crashes acted as a trigger to the already unstable U.S. economy. Due to the misdistribution of wealth, the economy of the 1920's was one very much dependent upon confidence. The market crashes undermined this confidence. The rich stopped spending on luxury items, and slowed investments. 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: Mc Elvaine The Great Depression (America 1929-1941)

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