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The Destruction Of The Economy In The 1920's

678 Words3 Pages

Following the prosperity of the Roaring Twenties, the world economy was hit by an extremely severe economic recession, referred to as the Great Depression. Albeit recessions are a part of a free market business cycle, due to the accumulation of several reasons that combined, the world economy was absolutely destroyed. The Roaring Twenties caused the stock prices to rise tremendously for successful companies. In order to profit from the rise in the stocks, many individuals began borrowing money in order to invest in the stock market; they assumed prices would continue to rise. Due to these investments, stock prices further increased, causing many others to invest, as well. However, on October 29, 1929, stock prices stopped rising on the New York Stock Exchange. As a result, investors began selling …show more content…

This combined selling caused stock prices to decrease more, and caused even more investors to sell their stocks. With investors selling and none buying, combined with the continued decline in stock prices, by November 13, the stock market had crashed. When the stock market crashed, investors had accumulated major losses and large debts, as many had borrowed money in order to invest. As well, due to the introduction of credit, many consumers had purchased goods on credit during the 1920’s, leading to debt that spread throughout the economy. As well, fearing a greater economic downturn, banks began calling in loans, causing many people to go bankrupt. The stock market crashing also caused several bank runs. A bank run is when a bank goes bankrupt due to many depositors withdrawing their

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Following the end of the First World War, the United States was initially prosperous. In 1929, that prosperous age about-faced into a downward spiral that enveloped the entire country. What was eventually called the Great Depression was essentially caused by four major events. At the start, the stock market was strong and thriving and the population was willing to invest in it. Americans were so confident in the market, in fact, that it was common for them to take out loans to fund their investments.

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Summary Of Only Yesterday By Fredrick Lewis Allen

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In September of 1929 Allen explains that the stock market crashes for the first time then rebounded, but by the end of October, the market was officially broken. The stock market crash made the Americans who invested into the Bull Market in left them empty-handed. The decline of the stock market caused the entire United States economy to slip into the Great Depression which lasted for approximately 10 years because many Americans lost money they initially invested. However, the during the time of the instability of the stock market Allen explains that Americans thought the market would rebut itself. In fact, the Harvard Economic Society hypothesized that the stock market would not suffer in a “business depression,” however, the Society did not realize that Great Depression was in the future.

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Although the 1920’s were booming and prosperous, the United States soon entered a prolonged economic depression. In October of 1929, prices in the stock market began an uneven downward slide (Document 2). As investors decided that the previous boom in the stock market was over, they sold more stock, thus causing the declination to increase even further. Many citizens of the United States were greatly affected by this. Families who had invested in stock lost most, if not all, or their life savings.

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This being the cause of prices concerning stocks and shares to increase, to the point that it was nearly impossible to invest in the market. This being a factor in causing companies to terminate their employees swiftly, and if an individual remained employed, their wage decreased dramatically below the minimum wage. Many counterparts had invested in the stocks with loans or borrowed money, and when the market crashed, their share had been utterly wiped out, leaving them with absolutely no money. Individuals who had their money in banks, became skeptical of the banks and started to withdraw their money, to preserve their remaining savings. This, causing the banks to have to take out loans from bigger banks so that they could pay the individuals their money.

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On October 29, 1929, the stock market crashed, which led to a large economic depression and dramatically dropped in stock prices. This depression caused people to get scared and not buy any

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The agricultural economy was suffering from drought and falling food prices, and the banks had a overload of large loans that could not be liquidated. In the summer of 1929, America’s economy suffered a mild recession. Consumer spending plummeted and the number of unsold products increased, causing factories to slow production of the goods. As a result, stock prices rose so high that there was no way they could be justified by expected future earnings. By this time, people were performing bank runs, this meant that people were going to the banks and withdrawing all their money in fear of losing it when the banks shut down.

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Mass domestic consumption during this time was good for the American businesses, but it was funded by bank credits and layaway buying without guarantees, which were highly unsustainable. In the 1920s, the vast majority of American banks were individual institutions that had to rely on their own resources. In 1930, after the market crashed, depositors nation-wide simultaneously tried to withdraw their money before the banks declare bankruptcy. The banks, unable to answer the overwhelming demand with the small fraction of cash they keep on hand, had to call in sold assets and loans they lent out, ultimately freezing credit, leading to deflation and halting the entire economy. A wave of bank failures that began in Louisville started to spread to Missouri, Illinois, Indiana, and Arkansas.

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The exciting and prosperous decade of the 1920s suddenly ended when the world faced a severe economic crisis known as the Great Depression. Most men were unaware of the upcoming crash of the economy and were left penniless. What led up to this catastrophe that not only affected our country but the world, globally? After the 1920’s many people began thinking they could get rich easily by buying stocks. This was the beginning of many unexpected problems such as stock market speculation, the failure of many banks, and the problem of overproduction and underconsumption.

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With the crash of the stock market, the booming times of the 1920s came to a sad end. The crash and its aftermath revealed major flaws in the American economy. These flaws helped transform a stock market crisis into the Great Depression. Herbert Hoover was the president of the United States at the time of this devastation. Hoover had served in the administrations of both Warren G. Harding and Calvin Coolidge.

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Before the Stock Market crash of 1929, America went through a decade of prosperity and social change known as the Roaring Twenties. New fads and numerous inventions emerged throughout our country. Many people bought on credit and as a result, our economy flourished. However, many Americans failed to realize this would be one of the underlying causes leading to the Great Depression. For instance, “Most people bought, but many couldn’t afford to pay the full price all at once.

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Overall, the 1920’s was a period of growth, profound changes, and excitement. The big question is how did the nation go from a period of extreme growth to a nation with a destroyed economy in such a short time. There are many variables in the causes of the Great Depression and they all cause each other to domino and cause even more problems. The failure of the stock market is what sparked the great depression as it was crucial to the economy. Many people tried as they could to sell their stock, but, unfortunately, no one was ready to buy.

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This rapid growth in the Roaring Twenties gave people confidence in the economy. This confidence led people to buying houses, borrowing on credit and investing huge amount of money into stocks. The stocks people bought were then traded at the New York Stock Exchange on Wall Street in New York City. The idea of trading stocks at this point was very profitable and almost anyone could have in on it, “Everyone from millionaire tycoons to cooks and janitors poured their savings into stocks. As a result, the stock market underwent rapid expansion, reaching its peak in August 1929” (H. Staff, The Great Depression).

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In the 1920’s, Americans wanted to expand their wealth and prosper. However, that took a turn for the worse when Herbert Hoover was elected president in 1929. At first, the stock market initially reacted favorably due to investors putting in money they did NOT have, they were using credit to purchase stocks while also taking advantage of the low interest rates. Unfortunately, everything went off course when the stock market crashed in October 1929. The market fell by more than half of what it used to.

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In 1929, America underwent an economic crisis. It was the longest and most severe depression of the industrialized western world. This was known as the Great Depression. The cause of this tragic event was partially caused by buying stock in credit. Banks handed out loans to people but when the stock market crashed, they couldn’t pay back the loan.

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