Causes of the Great Depression

Imagine waking up one morning, only to find that all your savings and investments suddenly disappeared. You then come to find out that the bank you invested all your money in collapsed and you would not get any of your money back. This is what happened to millions of Americans during the 1930s, which is the era of the Great Depression. The Great Depression, which is one of the worst economic issues we ever had in history, started in 1929 until 1939. There are many causes of the Great Depression during the era before the 1930s. First, the Great Depression was an economic deficit that began with the stock market crash. Second, unsound bank policies led to the overexpansion of credit as they tricked citizens to buy consumer goods with borrowed money. Last, debt increased due to European nations not being able to repay large sums of money to the United States. In short, the causes of the Great Depression led to a sad era that brought hard times to several million Americans.

The day the stock market crashed, known as Black Tuesday, led to billions of dollars being lost and caused the rest of the industrial world to spiral into the Great Depression. For instance, panic spread as "investment companies and leading bankers attempted to stabilize the market by buying up great blocks of stock" ("The Crash... and Beyond"). At the time, many stockholders would have to take out loans in order to purchase their stocks. The market started to drop as citizens were trying to sell off their stock in order to recover some money from the purchases. The stock market is very risky; stockholders can either earn a lot of money or lose all that they have. When the stock holders started to panic from the falling prices, they tried to sell in order to keep all the money that they could, which ultimately led to the downfall they feared. In addition, other causes of the inevitable collapse were "low wages, the proliferation of debt, a weak agriculture, and an excess of large bank loans that could not be liquidated" ("The Crash and the Great Depression"). The crash of the market ultimately affected the majority of Americans. The Americans who could originally afford to invest were the ones who paid the wages of the working class, so when the holders lost their money they were unable to pay the workers the amount they deserved. This created a domino affect as many started to buy less, which caused a lack of business. It became a worsening downward spiral that came to affect everyone. Furthermore, banks and businesses had also invested in the stock market, and "with the falling prices, the values of their investments plunged, causing them to fold" ("Stock Market Crash October 29, 1929"). The decline of banks and businesses led to citizens losing more money. As banks went out of business, Americans were unable to get back the money they saved. This led to a more economic downfall as well, since the losing of savings led people to living a life of poverty that was difficult to escape from. The stock market crash did not cause the Great Depression, but accelerated the global economic collapse, which led to the hardship of American's lives.

Assuming the economic boom in the 1920s would last forever, banks gave loans to businesses and investors who were unable to pay back the borrowed money, causing the economic collapse of the Great Depression. For instance, there was an illusion of wealth in the 1920s: "many people bought new consumer goods such as cars and washing machines on credit" (The USA in the 'Roaring 20s'"). During the 1920s, the credit card was created, which allowed Americans to spend money they did not have, leading them to believe there would always be economic prosperity. By the end of the decade, individuals were unable to pay back debt to the banks, causing them to close and Americans to lose the money they invested. Again, Americans trusted the banks as many "...invested in the growing US stock market with borrowed money, which increased debt" ("Great Society"). Originally, stocks were bought mostly through bank loans, but by the end of the 1920s, businesses and stockholders were unable to keep up with the payments. Without the funds from the settlements, banks were forced to shutdown. This created a bigger affect on citizens since the shutting down of banks led to many losing their life's savings and living a life of economic hardship. Finally, the spending of money based on credits and loans "increased debt, combined with a lack of oversight by any government agencies" ("Great Depression"). Not only were banks freely giving out loans that could not be paid back, but there also was poor supervision of the banks by the government.