How the Prosperity of the Roaring 20's Led to the Great Depression of the 30's

Topics: Federal Reserve System, Great Depression, Central bank Pages: 2 (654 words) Published: August 7, 2012
How the Prosperity of the 1920’s Led to the Great Depression of the 1930’s

The Great Depression was caused by not just one thing, but by many things put together, not only in America, but all over the world.
Americans were happy between the end of World War I and the onslaught of the Great Depression. Everything seemed as if it was expanding and getting better.
Overoptimism in the economy led to many people investing their new wealth in the stock market, because they assumed the economy would keep growing, or at the very least stay the same. No one expected it to go “belly up”. People believed everything would right itself and work out, all because of technology. In the 1920’s a lot of artificial wealth was created. People were rich “on paper” but had no tangible holdings to back it up. Companies invested in other companies and the stock market was artificially boosted. However, when people tried to get their money after the stock market crashed, they came to find out that their money was not really there, which led to things such as panic, bankruptcy, unemployment, and foreclosures. America’s economy shifted from heavy industry (iron, steel, coal, and oil) to consumer products (automobiles, radios, etc). People started to buy things on credit, with a “promise” to pay later. However, when the economy crashed, people were unable to pay their debts, and creditors were forced to take a “hit” on millions of dollars in bad loans.

There was almost no middle class in America at the time. One percent of the people owned over one-third of the wealth. Twenty percent of the people-the poorest- owned only four percent. A few people were rich, but all too many were poor.

After World War I, there was low unemployment, and people’s tax revenues were high.The federal budget ran very large surpluses. The “normalcy” of the 20’s made for higher levels of government spending, and higher taxes than before World War I.

The Federal Reserve made credit...
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