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The 1929 stock market crash and great depression

The Great Depression & the Stock Market Crash of the Century

The 1929 Great Depression was the worst worldwide economic depression in 20^th century history. The depression originated in the United States but quickly spread worldwide. The depression lasted until the late 30′s / early 40′s when things finally began to pick up.

Some people credit the blame the 1929 Great Depression on the 1929 Stock Market Crash (Wall Street Crash 1929). Other say that the Stock Market Crash of 1929 was a symptom of the Great Depression rather than a cause.

The Stock Market Crash of 1929 was a result of mass panic selling of stocks, this lead prices to plummet. Signs of market instability were seen slightly before “Black Thursday” (Thursday October 25^th 1929, the first day of mass stock sales in 1929) and “Black Tuesday” the notorious day when the Dow Jones industrial average (An overall measure of stock prices) dropped over 12%.

Prior to the Stock Market slumping in late October 1929, the market was actually thriving. Generally prices of stocks were on the up throughout the decade, peaking in September 1929. It was at this point that market instability started to set in. Because of prices being constantly on the up previously in the year, there was huge levels of public investment, many people would borrow over two thirds of the face value of the shares they were purchasing. This level of borrowing was simply considered normality with an economy thriving.

When the market began to look unstable, those who had borrowed to purchase shares wanted to sell as quickly as possible to make their money back. This caused panic selling to occur. Panic selling is when lots of shareholders are looking to sell at the same time and prices drop massively due to the excess supply. When prices begin to drop, even more people decide to sell in order to maximise their return in fear that share value is going to drop further.

Investors inevitably lost money. Those who had lost money cut their expenditure by 10% in order to pay back loans and restore savings. The massive cut in public expenditure caused interest rates to drop to low levels, loss of jobs and a decline in worldwide trade. Cities all around the world, particularly those who relied on heavy industry, were hit very hard. Many people were defaulting on loan payments and banks began to shut down.

Stock market crashes since, such as the stock market crash of 1987 and the stock market crash of 2008, haven’t caused such a global economic crisis as the 1929 Great Depression. The single biggest loss in one day on the stock market was “Black Monday” in 1987, where the Dow Jones Industrials Average dropped over 22%. Despite this, the Stock Market Crash of 1929 remains the worst in history.

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