Since the beginning of the economic revolution, the united states have experienced recessions at least, but none was severe or lasted as long as the great depression. It is only with the shift in the economy towards war armament in the late 1930s that the hold of the recession eased. Stock prices had been rising gradually since 1920, but in 1928 and 1929 their prices surged forward with average stock gaining over 40% in value. At the time, the stick was totally unregulated, and this led to a lot of margin buying as customers borrowed up to 70% of the purchase price. The easy and unregulated credit attracted more risk-takers and un-creditworthy investors to the stock market. Even as the Federal Reserve cautioned the banks against lending money for the purposes of speculation, the banks ignored the calls and continued to dish out loans to investors that were not able to pay back their debts. In early September 1929, the stock market reversed to bearish trend, but the investors ignored the warning. A clear downward trend confirmed on October 24, 1929 and again the ball dropped on “black Tuesday” October 29th, 1929. More than 27 million shares changed hands in panic trading. Overnight the stock fell from the peak worth of 87 billion to 55 billion dollars. The economy was shocked beyond the trading floors with the speculators unable to pay for their debt since no one could buy their devalued stock. This caused many commercial banks to fail and caused loss of trust and confidence to the financial markets prolonging the depression. While the collapse of the stock trading markets may have triggered the economic havoc, it was just but the tipping point of the combination of many other factors. The cost of agricultural production was high the unequal distribution of wealth, tax policies that favored the affluent in the society, and the capital outflows to Europe by the investors were among the major causes of the great depression
Bibliography
Bordo, Michael D., and Athanasios Orphanides, eds. The Great Inflation: The rebirth of modern central banking. University of Chicago Press, 2013.
