Causes of the Great Depression
By Decoda Gashler
The Stock Market Crashed
October 21, the stock market plunged. Frightened customers put their stocks up for sale at a frenzied pace, driving the market into a downfall. Black Thursday is October 24, the market plummeted even more. The next week on October 29 is Black Tuesday. That day stocks lost $10 to $15 billion in value. By November stocks lost over one-third of their price. But this was only a small cause of the Great Depression.
The Failure of Banks
With the market crashing weakened the banks in two ways. First, many banks lent money to stock speculators. Second, many banks invested depositors money in the stock market, as they were hoping for a higher return they could get by using conventional loans. For some bank's they suffered in the crash and were forced to close, and with the government not insuring bank deposits customers lost their savings. This made people to start taking their money out of banks as they were scared to lose it. This cause more banks to fail.
The Uneven Distribution of Income
The cause for the Great Depression was the overproduction. Most American didn't make enough to buy the goods. While manufacturing output per person hour rose 32% the average worker's wage went up 8%. 1929 people were only bringing only $2,500 a year. And after passing the Hawley-Smoot Tariff rates went up more. In 1932 U.S. exports fell to about one-fifth of what they had been in 1929, which hurt both American companies and farmers..
The Loss of Export Sales
If American manufacturers sold more goods then there would have been more jobs for people. U.S. banks made high-interest loans to stock speculators instead of foreign companies. this made foreign companies too stop buying from the U.S.
Mistakes made by the Federal Reserve
Just as people were able to buy more goods caused the stock market to go up. Instead of the interest rising the Federal Reserve Board kept the rates low. The Board’s failure to raise interest rates significantly helped cause the Depression in two ways. First, by keeping rates low, it encouraged member banks to make risky loans. Second, its low-interest rates led business leaders to think the economy was still expanding. As a result, they borrowed money to expand production, a big mistake was because it led to overproduction when sales were falling.
Primary source
As the consumer price dropped and unsold good began to pile up, slowing production and by October 24, 1929, everything went down hill. The stock market crashed which caused banks to lose money. People lost their jobs and over 4 million people were looking for any work they could get.
Work Cited
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