Prime Causes of the Stock Market Crash of 1929

Topics: Stock market, Wall Street Crash of 1929, Stock Pages: 5 (1839 words) Published: March 30, 2014
Prime Causes of the Stock Market Crash of 1929

Throughout the Roaring 20s, a long and very large boom took stock prices to high levels never experienced before. From 1920 to 1929 stocks multiplied more than four times in value. Many investors became convinced that stocks were a one way bet, which had some, if not most people, borrow funds heavily to invest more money in the market. The Stock Market Crash of 1929 became a major turning point in the history of the United States. It was a result of various economic imbalances and structural failings. Up to this point, America was in its greatest period of success; after this point, they slipped into a severe depression, one that has been referred to as the worst economic times in the history of the United States. The year of 1929 was marked by the Stock Market Crash in which most consider to be the beginning of the Great Depression as it has been stated as being one of the symptoms. The Stock Market Crash was caused by an economy that was not stable enough to handle the high stock prices at the time. The Stock Market Crash helped bring on the Great Depression which forced the United States government to make changes in the regulation of stock exchanges by providing much greater protection for investors. The Stock Market Crash of 1929 was not just caused by the stock investors, but primarily caused by the average American, although not deliberately, but because of credit they borrowed and could not repay. People in the United States were using credit but not wisely. The Americans kept “borrowing” money and not paying the banks back, and in the end, there were not enough funds left to give to the people of America. Spending also became an important matter as money that people kept “borrowing” was not substantial money; it was more of random loose ends that did not end up making a profit as a result. People eventually did not have anymore “loose ends” to spend and businesses started closing down. Due to credit-buying and over-spending, no investment could occur and everything went downhill from that point. These points state that it was more of spenders’ responsibility than the people providing capital for the stocks, because it was the spenders’ cash that all went downhill. All Americans are to blame for what happened in that period of time. The Americans thought that the banks were lowering and going in debt, so the Americans quickly withdrew their funds from their accounts in large numbers. That caused the banking systems to totally collapse which contributed to the 1929 Stock Market Crash. Since the economy was not stable, it was revealed as a mad struggle as people, corporations, and nations dropped into debt, misery and depression. As a result, credit-buying, over-spending and over-investing were the prime reasons behind the fall of the stock market and the crash of 1929.

Credit-buying was a huge issue in the 1920s. It was a period of great economic growth, and not many Americans took the future into consideration. Shares kept rising and people felt they would continue to do so. The average earning for every share increased by 400% between 1923 and 1929. This happened until Black Tuesday, when the stock market crashed. This turning point left millions of people in debt. Related to buying on credit was a financial breakthrough, called buying “on margin.” This innovation allowed those who did not have the cash to buy the stock completely and instantly to invest. Americans only had to put between 10-20% down, and thus borrowed 80-90% of the cost from their stockbrokers. From purchasing stock “on margin,” investors were getting more and more leverage managing their stock investments. As a result of this leverage, if a stock went up by even a small percentage, the investor received an increasing profit. This allowed more money to be put into shares, increasing their value. It is said there were many “margin millionaire” investors. Americans made large amounts of profit by...
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