Causes of Great Depression

Stock Market Crash of 1929
Many believe erroneously that the stock market crash that occurred on Black Tuesday, October 29, 1929 is one and the same with the Great Depression. In fact, it was one of the major causes that led to the Great Depression. Two months after the original crash in October, stockholders had lost more than $40 billion dollars. Even though the stock market began to regain some of its losses, by the end of 1930, it just was not enough and America truly entered what is called the Great Depression

Bank Failure
Throughout the 1930s over 9,000 banks failed. Bank deposits were uninsured and thus as banks failed people simply lost their savings. Surviving banks, unsure of the economic situation and concerned for their own survival, stopped being as willing to create new loans. This exacerbated the situation leading to less and less expenditures.

Reduction in Purchasing Across the Board
With the stock market crash and the fears of further economic woes, individuals from all classes stopped purchasing items. This then led to a reduction in the number of items produced and thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying for items they had bought through installment plans and their items were repossessed. More and more inventory began to accumulate. The unemployment rate rose above 25% which meant, of course, even less spending to help alleviate the economic situation.

American Economic Policy with Europe
As businesses began failing, the government created the Smoot-Hawley Tariff in 1930 to help protect American companies. This charged a high tax for imports thereby leading to less trade between America and foreign countries along with some economic retaliation

Drought Conditions
While not a direct cause of the Great Depression, the drought that occurred in the Mississippi Valley in 1930 was of such proportions that many could not even pay their taxes or other debts and had to sell their farms for no profit to themselves. The area was nicknamed “The Dust Bowl.” This was the topic of John Steinbeck’s The Grapes of Wrath.

farm depression
prices fell about 40% by 1921 and remained low through the 1920. farmers were producing more than the american consumers were consuming. so much farmers lost so much money they couldnt pay the mortgage on the farm. farmers ha to rent the land and equipment or move.

overproduction in industry
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Speculation And Overleverage In The Great Depression
With only loose stock market regulations in place before the Great Depression, investors were able speculate wildly, buying stocks on margin, needing only 10% of the price of a stock to be able to complete the purchase. Rampant speculation led to falsely high stock prices, and when the stock market began to tumble in the months leading up to the October 1929 crash, speculative investors couldn’t make their margin calls, and a massive sell-off began. While the great rise in the stock market (from 181 points in early 1928 to 381 points in September 1929) was fueled by optimism and false hope, the plunge was flamed by stark fear

Bank Failures And The Great Depression
Once the stock market crashed, fearful that banks would fail, millions of Americans began to withdraw their money. Virtually overnight, they put thousands of banks in peril. The more money Americans withdrew, the more banks failed, and the more banks failed, the more money Americans withdrew. By 1933, more than 11,000 of the nation’s 25,000 banks had collapsed.

Dust Bowl During The Great Depression
A drought that lasted from 1930 to 1936, known as the Dust Bowl, aggravated the problems of the Great Depression. More than a million acres of farmland were rendered useless because of severe drought and years of overfarming, and hundreds of thousands of farmers joined the ranks of the unemployed.

People Stopped Spending Money During The Great Depression
When the stock market crashed, and the banks failed, and unemployment levels reached higher and higher points, people understandably stopped spending money, which also deepened the economic crisis as demand for products and services ground to a halt.

False Sense Of Prosperity Before The Great Depression
The 1920s, known as “The Roaring Twenties” marked a time when America was overdependent on production, automobiles were the leading industry, and there was a great disparity between rich and poor. More than 60% of the population was living below poverty levels, while a mere 5% of the wealthiest people in America accounted for 33% of the income, and the richest 1% owned 40% of the nation’s wealth. This uneven distribution of wealth was mirrored in the unequal distribution of riches between industry and agriculture.

Global Crisis And The Great Depression
While America prospered during the 1920s, most of Europe, still reeling from the devastation of World War I, fell into economic decline. America soon became the world’s banker, and as Europe started defaulting on loans and buying less American products, the Great Depression spread.

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