The 1929 stock market crash caused panic among investors, leading to a week of extreme volatility and financial ruin for many. The crash cannot be seen as the sole reason for the Great Depression, but it was a major contributing factor.
The crash of 1929 is often considered to herald the Great Depression in the United States. Although historians debate this point, the sudden, rapid, and significant downturn in the stock market took the fortunes of many and left many in huge debts because they had borrowed to get stock. Some people are under the mistaken impression that the 1929 crash refers to only one day, but in fact several days and their aftermath encompass the crash.
The 1920s had been a time of growing prosperity, and interest in the stock market, prospecting, and investing grew because so many owed their prosperity to investments that paid off big. Not only the rich, but also many middle-income people saw the stock market as a way to get rich quick, so the investment of all or most people’s funds was extremely high. Then came Black Tuesday on October 24, 1929, considered the first day of the crash of 1929.
On Black Tuesday, stock prices plummeted, creating considerable panic among investors. Some chose to wait while others sold quickly. This combination of investors staying put and others selling quickly, or even buying shares sold at lower prices, meant that the remaining week was filled with considerable stock market volatility. Within the next week, the panic was extreme, resulting in the morbidly dubbed Black Monday of October 28, 1929, in which people sold as much as they could, creating stocks with ever lower and lower value.
The next day, with people still anxiously selling what they could get rid of, many were “ruined” financially. Those who kept their shares ended up with shares that could take a lifetime to recover in price, and sometimes never did when the companies issuing those shares went out of business. Since many companies had sizable holdings in the stock market, both businesses and individuals were affected.
For most of November, prices continued to fall, and if people hadn’t panicked by the end of October, by mid-November they were definitely on their way to financial ruin. By now it was too late for most. By the end of Black Monday, the stock market had lost about 14 billion US dollars (USD) of its value. The total loss in the first week of the 1929 crash was about $30 billion.
Did the crash of 1929 cause the Great Depression? You may never get a single response from historians or economists. Many believe that the sizable economic boom of the 1920s led to an inevitable “bust” and that this was simply part of a standard business cycle.
It is true that the crash of 1929 caused many people to lose their savings and homes due to inability to pay off loans. Additionally, businesses folded at a rapid pace, affecting even non-investors who were suddenly faced with high unemployment rates. It certainly cannot be seen as the sole reason for the Depression, although it was certainly, no matter how interpreted, a major contributing factor to the very difficult economic times that followed.
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