Five Causes of the Great Depression
The Stock Market Crash
In the '20s the stock market boomed and many stocks doubled and tripled in price. People were urged to by stocks and Wall Street was a prosperous enterprise. In 1929, however, Dow Jones stocks fell multiple times and caused a chain reaction of panic selling. Everyone was trying to get rid of their stocks and often times there weren't any buyers available. $30 billion disappeared from stock market prices. Many saw this as a beneficial disaster, including Andrew Mellon, Secretary of the Treasury, who predicted that the cost of living would decrease with the stocks and that those with money would help those without to adjust.
Mistakes by the Federal Reserve
Through the stock boom of the 1920s the Federal Reserve kept interest rates low, causing many to believe the economy was still expanding and encouraging banks to make more risky loans. When the economy began to tank in the early '30s the Federal Reserve finally increased interest rates which tightened credit.
Loss of Export Sales
Without American loans to foreign businesses, those countries were less compelled to buy American goods and exports fell. This was made more drastic in 1930 when the Hawley-Smoot traffic was passed to protect American businesses were foreign competitors, but only hurt American sales in other countries.
Banks in a Tailspin
As businesses began to fail and panic increased, many families pulled their money from the banks. This money was uninsured and banks began to go under causing other families to lose their own savings and banks would have to foreclose on loans, such as land leased for sharecropping, leaving many families out of a job and with no home.
Unequal Distribution of Wealth
In 1929 the wealthiest 0.1% of the population held 34% of national savings and had aggregate incomes equal to the poorest 42%. In addition, almost three-quarters of American families made less than $2,500 annually and most of them had no savings whatsoever.