History textbooks tell us that the 1929 stock market crash signaled the beginning of the “Great Depression.” Warning signs of overvaluation and buying on the margin were flashing red lights that a corrective path needed to be taken to avoid Black Monday. But none of this was evident to the leading economists at the time and the stock market crash did not cause the “Great Depression.” Why the market collapsed in October 1929 and did not surpass its pre-Depression value until 1954 continues to lack a consensus among economists. The discipline of economics was still being developed in 1929. Even in hindsight, the evidence is not clear why the market crashed in 1929. The housing market crash in 2007-2008 producing a global credit crisis that reduced housing prices more than during the Great Depression was also unforeseen. Numerous books and even a Hollywood film, The Big Short, attempt to answer the question that Queen Elizabeth asked economists, “Why did nobody notice?” Major economic upheavals are not always evident in real time but only in hindsight—and not even then.
Most stocks were trading at 14 to 19 times earning in September 1929 with profits growing faster than stock prices. Some stocks were indeed overvalued and overpriced as in any market at any time. The Bull Market of the 1920s allowed credit to be extended generously so new investors only needed to purchase stock at twenty-five percent of its value, the other seventy-five percent was borrowed money from a brokerage firm. At the time of the crash, roughly 600,000 margin accounts were held by brokerage firms out of a total national population of 120 million Americans. It has been estimated that three million Americans owned stock of some sort, most of small amounts fully paid. Again, that represented less than 2.5% of the American population. Unlike today with most Americans tied to the stock market directly with retirement accounts or indirectly with managed pension plans, most Americans in the 1929 were not active in the stock market directly or indirectly. The image of vast numbers of investors jumping out of office building windows simply did not occur. In fact, as the business historian, Robert Sobel, noted, “the suicide rate was down during this period.”
At its peak on September 3, 1929, the Dow hit 381.17. The “crash” witnessed losses of 12.8% and 11.7% on Black Monday and Tuesday. The market hit bottom almost two years later at 41.2 marking a decline in value of 89.2%. As one writer described it “In less than 35 months, a dollar invested in stocks shriveled into barely more than a dime.” Surprisingly, no bank failures or major business failures occurred in the immediate aftermath of the crash. While the market crash did not cause the Great Depression, it was a factor in the economic malaise that characterized the period.
Economic downturns hurt the optimistic bullish investors but reward the pessimistic bearish investors. Several individuals who bet against or “shorted” the market became rich or richer. Percy Rockefeller, William Danforth, and Joseph P. Kennedy made millions shorting stocks at this time. They saw opportunity in what most saw as misfortune.
What Were the Causes of the 1929 Stock Market Crash? There were many causes of the 1929 stock market crash, some of which included overinflated shares, growing bank loans, agricultural overproduction, panic selling, stocks purchased on margin, higher interest rates, and a negative media industry.
The "Great Depression " was a severe, world -wide economic disintegration symbolized in the United States by the stock market crash on "Black Thursday", October 24, 1929 . The causes of the Great Depression were many and varied, but the impact was visible across the country.
The common misconception is that the Stock market crash was the major factor to cause the Great Depression. However, if the economy was healthier at the time then the crash would have just been considered another financial crisis.
Among the more prominent causes were the period of rampant speculation (those who had bought stocks on margin not only lost the value of their investment, they also owed money to the entities that had granted the loans for the stock purchases), tightening of credit by the Federal Reserve (in August 1929 the discount ...
How could the Stock Market Crash of 1929 been prevented? Had the Federal Reserve and other governing bodies established a separation of banks and investment firms, the stock market would likely not have become saturated, especially with borrowed money.
Answer: The statement that is not correct with reference to the Great Depression is "C. USA doubled the loan to different countries." The Great Depression was characterized by a severe contraction of credit and a dramatic fall in international trade, which led to a decrease in lending, not an increase.
Among the suggested causes of the Great Depression are: the stock market crash of 1929; the collapse of world trade due to the Smoot-Hawley Tariff; government policies; bank failures and panics; and the collapse of the money supply.
Only the Fed was big enough to prop up the U.S. financial system. The Fed failed to do so with a cash injection between 1929 and 1932. It watched the money supply collapse instead and let thousands of banks fail. This and a collapsing financial sector led to deflation and spurred the following depression.
Not everyone, however, lost money during the worst economic downturn in American history. Business titans such as William Boeing and Walter Chrysler actually grew their fortunes during the Great Depression.
Answer and Explanation: Despite the widespread impact of the Great Depression in America, two industries did not suffer. These industries included entertainment and alcohol.
With no job and no savings, thousands of Americans lost their homes. The poor congregated in cardboard shacks in so-called Hoovervilles on the edges of cities across the nation; hundreds of thousands of the unemployed roamed the country on foot and in boxcars in futile search of jobs.
The Great Depression was the worst economic crisis in modern history, lasting from 1929 until the beginning of World War II in 1939. The causes of the Great Depression included slowing consumer demand, mounting consumer debt, decreased industrial production and the rapid and reckless expansion of the U.S. stock market.
By the summer of 1932, the Great Depression had begun to show signs of improvement, but many people in the United States still blamed President Hoover.
Several individuals who bet against or “shorted” the market became rich or richer. Percy Rockefeller, William Danforth, and Joseph P. Kennedy made millions shorting stocks at this time. They saw opportunity in what most saw as misfortune.
Expert-Verified Answer. The three major reasons that led to the stock market crash were overextended credit, uncontrolled spending, and overproduction. The stock market crash of 1929 was considered the worst economic event in world history.
Herbert Clark Hoover (August 10, 1874 – October 20, 1964) was an American politician and humanitarian who served as the 31st president of the United States from 1929 to 1933. A member of the Republican Party, he held office during the onset of the Great Depression.
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