The of November and early December, the economy

The Stock Market
Crash of 1929 is considered to be a major factor that led to the Great
Depression. The four day collapse of stocks began on Thursday, October 24, 1929
also referred to as “Black Thursday” and created a continuous downward spiral
until the major crash on Tuesday, October 29, 1929 also referred to as “Black
Tuesday”.  Wall Street refers to these
days as “Black Thursday and Tuesday” because the stock market plummeted to an
all-time low causing the overall economy to crash. The days leading up to the
cash were eerie as no one saw how detrimental Wall Street was in keeping the economy
afloat. The crash is said to be the worst financial decline in the United
Stated as the Dow Jones Industrial (DOW) dropped and average of twenty five
percent.  

The timeline for
the Great Depression is said to run from 1929 to 1939 giving a ten year gap of
economic downturn. However, even though the timeline ends at 1939, unemployment
rates remained above ten percent until 1941 when the United States entered
World War II. To start things off, on March 4 1929, Herbert Hoover was elected
President. Several changes were made under his presidency including the
expansion of protection for government employees, canceled private oil leases, he
established a board to help raise prices for farmers, and lowered the top
income tax rate from 25% to 24% (The Balance, 2017). Fortunately, it was not
until August 1929 that the economy started to fail. The DOW reached an all-time
high in September leading the majority of the economy to believe everything was
working in their favor. It wasn’t until the Stock Market Crashed that kicked
off the start of The Great Depression. On Thursday October 24, stocks had
dropped about eleven percent.  On Friday
October 25, the stock market had jumped about one percent. The very next day
the market dropped one percent again leading the economy back to an eleven
percent decrease. Similarly on Monday October 28, the stock market fell another
thirteen percent. As if these numbers could not get any worse, finally, on
Tuesday October 29, the stock market had fallen an additional twelve percent and
a record breaking sixteen million shares were traded (The Balance, 2017). By
the end of November and early December, the economy was on the brink of a tragedy.
However, the only thing that kept theorists hopeful is the fact that the
unemployment rate had only dropped three percent. What they did not know was
how much of a ripple effect the crash would have on the economy. A total of six
hundred fifty banks had failed and as they failed the value of the dollar increased
which caused prices to fall and businesses to have to close their doors (The
Balance, 2017).

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The economic
impact that the Stock Market Crash of 1929 had on the American economy was exponential.
The worst economic downturn just occurred in the country and once the crash
wiped out millions of investors, consumer spending dropped causing several
businesses to fail and lay off their employees. By 1933, the Great Depression
reached its lowest point and 15 million people were unemployed (Depression,
2017). This high unemployment rate caused people to have to dip into their life
savings. While most thought it could not get any worse, the banks did not have
enough cash on hand to distribute the money and eventually had to close their
doors.  The money people had invested was
not insured at the time which resulted in most people having to settle with
only receiving ten cents per dollar they had saved (The Balance, 2017).

During the four
days of the crash and the panic that ensued, Wall Street lost all confidence
with the general public. During the crash, “Investors traded a record 16.4
million shares. They lost $14 billion on the New York Stock Exchange, worth $199
billion in 2017 dollars.  During the four
days of the crash, the Dow dropped 25 percent and investors lost $30
billion. That was ten times more than the 1929 federal budget. It was more than
the United States had spent on World War I. After the crash, stock prices
continued to fall. They hit their 1929 bottom on November 13. By then,
more than $100 billion had disappeared from the American economy. In today’s
terms, that was worth $1.3 trillion.  Black Tuesday kicked-off the Great Depression. What
followed was a complete loss of confidence in the U.S. financial
system. The Dow didn’t regain its pre-crash high until November 23,
1954 (The Balance, 2017).”

There are several
theories as to what caused the Stock Market Crash of 1929 but the most common assumption
is that the stocks were overvalued. The stock market operated using ticker tape
due to the lack of advanced technology that we have today. Because of this,
employees were unable to keep up with the ticker tape and were unaware of just
how bad stocks had fallen. In the days leading up the crash, the market saw an
all-time high. This increase in stock values caused investors and banks to get
in on the action. Stocks were being shared left and right and employees could
not keep up with the trading. On the day of October 24, 12,849,650 stocks were
shared on the market. This was an outrageous number to be shared using ticker
tape. If Wall Street operated on the technology today, employees may have been
able to see the Stock Market crash ahead of them and be better prepared for the
economic downturn.

 In addition, buying on margin and investment
trusts were also taken into consideration as to why the market crashed. “Margin buying during the 1920’s was not controlled by
the government. It was controlled by brokers interested in their own
well-being. The average margin requirement was 50% of the stock price prior to
October 1929. On selected stocks, it was as high as 75%. When the crash came,
no major brokerage firm was bankrupted, because the brokers managed their
finances in a conservative manner. At the end of October, margins were lowered
to 25% (Eh.net, 2017).”  People were able
to utilize money they borrowed from brokers and once the brokers needed more
money they took out loans from banks. Some investors were using their life
savings in order to pay back the money they borrowed. Similarly, investment
trusts were very popular with investors. In 1928, investment trusts sold $400
million shares to investors. Compare this amount to $1 million that were sold
in 1929. Investment trusts were sensible and more people were getting involved
in them. In September alone, $643 million was invested in investment funds (Eh.net,
2017).

As a result of the
stock market crashing, all segments of the economy started to crash. Housing prices
skyrocketed making it impossible to afford a place to live. Unemployment rates
were astronomical which led to many businesses going out because they could not
afford to pay a livable wage like they were before. Even after the crash occurred
and was starting to settle down, stock prices drastically increased over time
making the prices unattainable as the remainder of the economy plummeted. However,
not all stocks rose over time. The stocks that increased the most were in industries
were optimism was needed for success. These industries included: airplanes, agricultural implements, chemicals,
department stores, steel, utilities, telephone and telegraph, electrical
equipment, oil, paper, and radio. These were reasonable choices for
expectations of growth (Eh.net, 2017).”

Overall, the effects the Stock Market Crash of 1929
had on the economy was detrimental. There have been a few crashes since but
they have not come close to the power the Stock Market Crash of 1929 had. It
took a long time for the economy to regain strength after the downturn and some
would argue that the effects lasted longer than what has been reported. A
domino type structure was formed around Wall Street during that time period
which made everything fall at once. Now, because of the crash and the resulting
Great Depression, we have insurance plans put into place to guarantee that if
banks fail or mortgages are lost, the insurance company will help offset any
losses. The plans we have in place today are likely a result to prevent another
Great Depression occurring causing the economy to shut down in a whirlwind.