How did The Great Depression occur?


How did The Great Depression occur?

In: Economics

Stock market was over-valued at the time and it came crashing down. People lost a ton of money. Companies had to declare bankruptcy and a lot of people lost their jobs. The good times were over for them.

The federal reserve lowered interest rates and encouraged borrowing. This led equities to rise to unheard of levels. People then borrowed more money and bought stock on margin. Basically no one thought the good times would end. But, when the party was over the bill came due. And since everyone’s profits were just on paper, everyone was broke and credit collapsed and people stopped lending.

The post war boom after world war 1 led to a great economic expansion. Many people started investing into the market which created hyper-inflated stock values. People were under the impression that stock prices would keep going up forever. So, everyone, and I mean anyone with any money, was invested in the market. The Federal Reserve warned that speculation was dangerous. Some people freaked out and started pulling out cash which created a dip in the market. Essentially, every freaked out and started pulling money which led to decreasing stock values until they were worthless. The difference in the cost of an given stock and 0 was how much each person lost per share. Basically, peoples life savings were completely wiped out and went from riches to rags overnight. The instantaneous lose of money stopped everything in it’s tracks. Business had less customers and the couldn’t keep paying for workers. Less workers less customers. That cycle continued into the Great Depression.

Similar to the 2008 collapse with one major exception; the banks were selling loans to people that they knew could never pay up. Instead of people’s money be lost on bad stocks they were lost on bad securities. That DEPRESSION was totally caused by the ‘financial institutions we can trust!’.

But don’t trust me! Verify on Wikipedia:



America got big sad because money stock market did poorly. Everyone went to get their money out of the banks but there wasn’t enough cash on hand for people to withdraw en mass.

After the massive growths of World War I, very dumb investors went hog-wild investing in stocks – sometimes with borrowed money – even though stocks were actually dropping in value due to declining production and rising unemployment, since there was no longer a war actively going on and all. (Investors are still this stupid and short-sighted today, and we are constantly at risk of a second Great Depression.)

This was rendered much worse by the fact the common people were getting poorer. Wages were way too low, which meant debts were high as people relied on loans for purchases. A drought was rendering food scarce and yet food prices were still falling because not only could no one afford to buy it, the farmers couldn’t even afford to harvest and process it. (Slavery had ended on paper in 1789, but many Southern farmhands were still black, and their employers simply cut their pay without anybody calling them out on it.)

Business owners were not any smarter than the investors. Seeing the delusional investment fetish dying down to sane levels, they took this as a bad sign and actually *turned down production and fired workers*, making *all* of the above-listed problems worse.

The economy strained and stretched, then abruptly snapped at two points:

1. The stock market completely crashed and most investors were wiped out.
2. Many people (notably these idiot investors) began withdrawing all their money from banks, which had *also* been relying on loans and did not have anywhere near enough cash on hand. Banks began closing en masse, leaving many people with nothing.

The Great Depression was such a wound that it even affected Europe, due to the US’s role in international trade, and is a major factor in the perfect storm that allowed Hitler to come to power.

The entire United States became a desolate wasteland and the poorest communities became known as “Hoovervilles”, after then-President Herbert Hoover, who believed government should not directly intervene in the (clearly failing) economy beyond a few government loans to banks, and never got around to fixing it even as the unemployment rate rose above 20%.

His successor, Franklin D, Roosevelt, did all that for him. (He also made absolutely sure that every New Deal agency had at least one black advisor.)

On the plus side, the Great Depression was one step in the increasing employment of women, who were driven by necessity as their husbands lost their jobs and who were heavily supported by First Lady Eleanor Roosevelt. However, at the time, federal law still limited women to certain jobs and set lower standard wages for them than men.