Depression And Depression: The Causes Of The Great Depression

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People are led to believe that the Great Depression started with the stock market crash of October 1929, but that isn't true and it leads people to mistake correlation with cause. When one thinks of the Great Depression they think it began after the stock market crash, but not because of it. The underlying economic conditions in the U.S before the stock market crash weren't all "moonshine and rainbows"; The 19 twenties featured large scaled domestic consumption of relatively new consumer products, which was good for American industry. Much of this consumption was fueled by credit and installment buying, which as it turned out was very unsustainable. The thing about credit is that it works fine unless and until economic uncertainty…show more content…
other signs of economic weakness also appear throughout the decade, for instance, in 1925 the growth of car manufacturing slowed along with residential construction and Herbert Hoover labeled "an orgy of mad speculations" in the stock market that began in 1927. According to historian, David Kennedy, by 1929 commercial bankers were in the unusual positioning of loaning more money for stock market and real estate Investments then for commercial ventures. It is easy to see where one would think the stock market crash occurred only because of the depression, possibly because it turns American economic history into morality play, but the truth is that the stock market crash and depression were not the same…show more content…
I’m glad you asked. That's a big question and it's one that Economist have struggled with ever since. they would like find out the cause so they can prevent it from ever happening again. Only about three percent of Americans owned stock at the time, and the markets recovered a lot of their value by 1930, although they did go down again because there was depression occurring; even though big Banks and corporations were buying a lot of stock, much of it was with borrowed money known as margin buying and all of that still was not nearly a deep enough pothole to sink the world's economy. If I had to name the single cause of the Great Depression it might be America's weak banking system. Although the Federal Reserve System had been created in 1913, the vast majority of Americas banks at the time were small, individual institutions that had to rely on their own resources. When there was a panic and depositors rushed to take money out of the bank, they went under if it didn't have enough money on reserve. So in 1930 wave of bank failures begin in Louisville that then spread to Indiana, Illinois, Missouri, and eventually Arkansas and North Carolina. As depositors lined up to take their money out before the banks went "belly-up", Banks called in the loans and sold assets. Ultimately this meant that credit froze up, which was really what destroyed the economy. A frozen credit system meant that it was less money in circulation and that led

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