The Great Depression Causes: Stocks

Swyam Karsaliya, Alexis Miears, Patrick Valenski

The Great Wall Street Crash of 1929

October 29th, 1929

On the 24th and 29th of October 1929, dubbed "Black Thursday" and "Black Tuesday", the stock market crashed. In September 1929, the Dow Jones Industrial Average reached a record high of 381.2. One month later, the market fell 33 points in one day, causing a massive selling panic. This event led to stocks losing up to 90 percent of their value, and ultimately, the Great Depression.

Stocks on Margin

As the economy of the United States was on a steady incline during the 20's, more and more citizens began to look towards ways to maximize economic success. The stock market became the major way to do so, and much of America began to invest in stock. People without the money to purchase stocks could buy on margin meaning that a broker bought some percentage of the stock and the citizen bought the rest. When the stocks began to crash, everyone began to start pulling out their money from the market and brokers began to ask for their money back from investors to reduce the damage dealt to them. This sudden lack of money left the stock market weak and bound to fail, and the margin calls left many Americans broke or in debt.
The crash in 1929 was a catalyst for the Great Depression, stocks had been increasing over the past four years; the total reached a 120% increase in value by 1929. During this period of growth many believe there were mass amounts of over-speculation that let rates get that high. The sharp drop in avg, stock prices, shown on the graph, illustrates the dramatic fall the economy had taken.

Attempt to Save the Stock Market

With the sudden fall in the stock market, America was in danger of having massive economic failures nationwide. To prevent this, a group of banks came together to fill the market with their own money to help it stay alive long enough to turn around. However, Americans were to afraid of what they had just seen to invest their money and so the market did fall. With this, the invested banks began to fail as well and their customers could not withdraw their money since there was no money left.

Repercussions

As banks began to fail, companies lost money and went out of business and workers lost their jobs and were broke. With no way to find work and no way to create businesses, America had entered the Great Depression. The unemployment and bank failure was caused, at least slightly, by the failure of the stock market from Americans selling all of their stocks and no one purchasing any.

Timeline of Events

  • March 1929 : The DOW drops, but bankers reassure investors.
  • August 8 : The Federal Reserve Bank in NY raises discount rate to 6%.
  • September 26 : Bank of England also raises its rate to protect gold standard.
  • September 29, 1929 : The Hatry Case plunges British markets into panic.
  • October 24 : Black Thursday.
  • October 28 : Black Monday.
  • October 29 : Black Tuesday.
  • 1933 : The FDIC (Federal Deposit Insurance Corporation) is created.
  • November 23, 1954 : DOW finally returns to its high.

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