The Stock Market Crash Of 1929: Causes, Consequences, And Lessons Learned

Multiple factors led to the Stock Market Crash of 1929

Thursday, October 24^th, 1929 was when it all began. The stock market crashed within five days. The stock market investors traded nearly thirteen million shares and billions of dollars were lost that day. This event caused major issues in the United States and is one of the causes of the Great Depression. This economic disaster however did not happen in one day.  This catastrophe was caused by several economic factors. It changed the lives of millions of people and affected several business. It also became one of the reasons for the occurrence of the Great Depression.

The Stock Market Crash was a result of an economy that was not steady enough to deal with the high stock costs.Since 1924, the prices of stock shares that were financed in the U.S. companies went up. In 1929, more than a billion shares of stock ownerships were being sold and changing.  In the 1920s, the nation’s economy really became the stock market since the total capital was invested in it. It became easy for people to invest in stock due to the constant use of buying on margin. That is when an investor could make a small cash down payment on shares of stock and borrow the rest from a stockbroker ( the book pg901-902). At the time stockbrokers were lending more than the value of the stocks that the investors were purchasing. Therefore, the stock prices kept rising faster.

Another factor that caused the stock market crash in 1929 include the easy credit that people had access to. Amid the 1920s, there was a quick development in bank credit and effortless access to loans. People started borrowing money to invest in the stock market since the share prices were rising. Individuals supported by the market’s steadiness were unafraid of obligation. The idea of “buying on margin” permitted regular individuals with minimal financial knowledge to obtain cash from their stockbroker and put down a small percentage of the share value.

Americans overlooked these issues and were confident that the economy and the stock market was booming. They had false expectations and overconfidence in the stock market. This confidence was also happening in productions such as agriculture and automobile. In the agriculture production there was a struggle to make profit due to the decreased need of food supplies. The demand for cars were also at a low rate which caused low sale production for the firms. The profit results were low which caused the share prices to drop.

The stock market didn’t exactly crash all together in one day. It began on October 24^th1929, known as black Thursday, marked the first day of the crash. That day nearly thirteen million shares were traded.  (INSERT BOOK INFO HERE)  After the disaster, three leading banks brought millions of dollars’ worth of shares to reinstate credence in the market. That action improved the Dow Jones Industrial Average percentage for that day. The following day, the stock market actually ameliorated even more as the market moved back to six million shares. The calm and hope was short lived on the following Tuesday, October 29^th , 1929. This event known as “Black Tuesday”, when investors traded sixteen million of the stock exchange.

Description of Black Thursday, Black Monday, and Black Tuesday

(Next paragraph : Describe the day  of the crash and what happened in new York and the united states at the time)

The first day when the stock market collapsed that is on the Black Thursday, the Dow opened at the level of 305.85. However, it dropped 11% straight away, indicating correction of the stock market (McQuarrie 130). It can be hereby observed that trading was necessarily triple the normal amount. Again, bankers of Wall Street anxiously purchased shares for sustaining the same. However, the stratagem properly worked. By the closing of the day, Dow decreased by roughly 2%. On 25^th  October, the positive momentum unrelentingly continued. In essence, the Dow increased by around 1% and closed at 301.22 (James 140). Nonetheless, a short spanned trading day that is on Saturday eliminated the identified gain. It was registered that Dow closed at the level of 298.97, as per reports presented by MeasuringWorth.com. Again, on 28^th October also referred to as Black Monday, the Dow dropped by approximately 13% to around 260.64 (Odekon 91). The following day that is on the 28^th October also known as Black Tuesday, the Dow dropped by roughly 12% to around 230.07. As a consequence, the investors got panicked and investors sold about16410310 shares (Galbraith et al. 180). The four day stock market collapse can be considered to be the worst decline in the history of U.S. It was observed that the Dow Jones Industrial Average decreased approximately 25% and lost approximately $30 billion in terms of market value (Gitlin et al. 132). The consequences of the stock market crash proved to be more than overall cost of the incidences of World War I. Essentially, this destroyed overall confidence in the markets of Wall Street and directed towards Great Depression. At the time when Great Depression started, several individual perceive that it began with the crumpling of the stock market during October 24. However, it essentially started a month before at the time when the market dropped 10% in a correction during the period of March.

The stock market crumpling of the year 1929 wiped out several people. People were compelled to sell out their businesses and cash in all their savings (Galbraith et al. 180). Also, brokers took off the market their loans at the time when the stock market began dropping. Individuals scrambled to get adequate money to make disbursements for margin. In this way, people lost their faith on Wall Street. Again, by the end of the period of 8^th July, 1933, the Dow decreased to around 41.22. In essence, this reflected a 90% loss from the level of highest recorded closing of 381.2 on particularly 3^rd September in the year 1929 (Eckes 70). This was regarded as the worst bearish market in context of loss in percentage recorded in the modern history of the United States. The greatest gain in percentage of one day also took place during the same time. Records also reveal the fact that during 15^th March of the year 1933, the Dow recorded an increase of approximately 15.34%, reflecting gain of roughly 8.26points that closed to around 62.10 (Davis 170). The scheduled timeline of particularly the Great Depression shows critical incidents directing towards highest economic crisis that ever happened in the region of the United States. Aftermath the crumpling of the stock market of the year 1929, the Great Depression essentially devastated the entire U.S economy. Wages also declined by approximately 42% since overall rate of unemployment increased to approximately 25%, rate of growth of the economy also declined by around 50% and world trade plunged by 65%. On account of deflation, prices also decreased by around 10% every year between the year 1929 and the year 1933 (Chen et al. 130). Analysis of the effects of the stock market crash of the year 1929 also reveals the fact that although stock market crash was not necessarily the sole reason of the Great Depression, however, it did play a role in acceleration of the worldwide economic fall down (Gitlin et al. 132). By the end of the period of 1933, approximately half of the banks of America encountered failure and rate of unemployment was advancing 15 million individuals otherwise 30% of the workforces (Barro et al. 387). There was relief along with reform dimensions that was enacted by the government of President Roosevelt to reduce the ill impacts of the Great Depression. Nevertheless, the United States would not entirely turn around until the period of 1939 that is when World War II revitalized industries in America (Ayden and Eric 115). The Great Depression that lasted for around 10 years affected both industrialized as well as non-industrialized nations in different parts of the world.

References

ayden, Eric W. H. “The Stock Market Crash of the Great Recession: Who’s To Blame?”. Journal of Stock & Forex Trading 01.01 (2012): 112-120.

Barro, Robert J., and José F. Ursúa. “Stock-market crashes and depressions.” Research in Economics 71.3 (2017): 384-398.

Chen, Yangyang, Mark G. Maffett, and Leon Zolotoy. “The Dark Side of Liquid Market: Stock Liquidity and Stock Price Crash Risk”. SSRN Electronic Journal (2013): 124-132.

Davis W. Houck. “Rhetoric as Currency: Herbert Hoover and the 1929 Stock Market Crash”. Rhetoric & Public Affairs 3.2 (2000): 155-181.

Eckes, Alfred E. “Smoot-hawley and the stock market crash, 1929-1930”. The International Trade Journal 12.1 (1998): 65-82.

Galbraith, John Kenneth, and James K Galbraith. The Great Crash, 1929. London: Penguin, (2009): 176-185.

Gitlin, Marty, and Richard Eugene Sylla. The 1929 Stock Market Crash. Edina, Minn.: ABDO Pub., (2008): 131-135.

James, Harold. “1929: The New York Stock Market Crash”. Representations 110.1 (2010): 129-144.

McQuarrie, Edward F. “Stock Market Charts You Never Saw.” (2017): 127-134.

Odekon, Mehmet. Booms and Busts: An Encyclopedia of Economic History from the First Stock Market Crash of 1792 to the Current Global Economic Crisis: An Encyclopedia of Economic History from the First Stock Market Crash of 1792 to the Current Global Economic Crisis. Routledge, (2015): 84-92.

Richardson, Gary, et al. “Stock Market Crash of 1929-A Detailed Essay on an Important Event in the History of the Federal Reserve.” Federal Reserve History. Np, nd Web 2 (2016).