What led to the Great Depression?

by Aspin Denson

Stock Market Crash

The stock market crash was an important cause to the Great Depression because during the 1920s stock prices increased at roughly twice the rate of industrial production. Paper value far outran real value. Only four million Americans owned stocks out of 120 million. Many different approaches increased the stock market's expansive and optimistic atmosphere. These approaches including: corporations giving money to stock brokers and investment trusts. This is important because this attracted more and more people, which provided a greater chance for the stock market to crash.

Mistakes by Federal Reserve

The Federal Reserve kept its interest rates extremely low throughout the acceleration of the stock market, and this had two major impacts. One being with the low interest rates, the U.S. banks would make extremely dangerous loans. Lastly, the low interest rates influenced business leaders the economy was still in good shape, which led to an economic downward spiral. However, they kept going and asked for money to keep expanding production, which resulted in the manufacturing of goods that would ultimately fail in sales. The Federal Reserve made one more mistake: raising the interest rates, which tightened the credit, and made it even harder for more Americans, especially the poorer fifth, to make any money.

Unequal Distribution of Wealth

The unequal distribution of wealth was the most important weakness in the economy because the poor people only had four percent of the nation's wealth while the richest fifth of people had over 54.4 percent of the nation's wealth (based on 1929). This is important because it shows you the incredulous distribution of wealth in America at this time, and this had an effect on the poorer people because they would lose their savings and their jobs, and have absolutely no way to obtain any money.

Loss of Export Sales

American manufacturers had sold many goods. As the market accelerated in the 1920s, U.S. banks made high-interest loans to stock brokers instead of sharing or selling it to foreign companies; without these loans from the broken U.S. banks, foreign companies became uninterested in American products, and without the foreign support of currency, these manufactures lost money, and ultimately, had to fire people, which made the depression even worse.

Banks in a Tailspin

The U.S. banks would become completely broke because of their choices of how to use the money. The acceleration of the bull market in the 1920s influenced most U.S. banks to invest the money they have been deposited, and which, with the 1929 crash, left many people broke because the banks lost all of the money. Also, the banks would give out money to this stockbrokers hoping for more money in return. However, again the crash caused the money to vanish. This had an incredible impact on the economy because people's savings would have been gone, and there was nothing one person could do about it.