The Cause and Effects of the Great Depression

Topics: Wall Street Crash of 1929, Great Depression, Dust Bowl Pages: 4 (1441 words) Published: February 2, 2011
Many people speculate that the stock market crash of 1929 was the main cause of The Great Depression. In fact, The Great Depression was caused by a series of factors, and the effects of the depression were felt for many years after the stock market crash of 1929. By looking at the stock market crash of 1929, bank failures, reduction of purchasing, American economic policy with Europe, and drought conditions, it becomes apparent that The Great Depression was caused by more than just the stock market crash. The effects were detrimental beyond the financial crisis experienced during this time period.

The first and most obvious known factor in the development of The Great Depression is the stock market crash of 1929. The Money Alert website states that, “When the stock market crashed in 1929, it didn’t happen on a single day. Instead, the stock market continued to plummet over the course of a few days setting in motion one of the most devastating periods in the history of the United States” (The Money Alert). Many investors would buy stocks on a margin where they would purchase the stocks with borrowed money. This was a great option for buyers when the stock market was on the rise. However, when the stocks plummeted, the financial institutions that had loaned the money for the stock purchase went to collect the capital that had been loaned out and were unable to do so.

This, in effect, caused banks to lose money as a result of being unable to collect on the debt, and the investors were unable to collect their losses. In addition to private investors, banks and businesses were investing in margin loans as well. So, these poor investment strategies led the banking industry to lose the majority of their assets, including money from bank customers that had no knowledge that their money was being used for this purpose. Since no government regulations were in place to protect investors and banks in this circumstance, this ultimately led to the effect of the stock...
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