Was the Great Depression because of stocks?
Simply put, the
The 1929 crash didn't cause the Great Depression outright, with only 10% of Americans invested in the market, but it lowered consumer spending, caused panic that worsened an ongoing recession, reduced corporations' assets and hurt their future prospects, and contributed to a banking crisis.
Among the suggested causes of the Great Depression are: the stock market crash of 1929; the collapse of world trade due to the Smoot-Hawley Tariff; government policies; bank failures and panics; and the collapse of the money supply.
The money stock fell during the Great Depression primarily because of banking panics. Banking systems rely on the confidence of depositors that they will be able to access their funds in banks whenever they need them.
The Great Depression began in 1929 when, in a period of ten weeks, stocks on the New York Stock Exchange lost 50 percent of their value. As stocks continued to fall during the early 1930s, businesses failed, and unemployment rose dramatically.
The beginning ofAmerica's "Great Depression" is often cited as the dramatic crash of the stock market on "Black Thursday," October 24, 1929 when 16 million shares of stock were quickly sold by panicking investors who had lost faith in the American economy.
Not everyone, however, lost money during the worst economic downturn in American history. Business titans such as William Boeing and Walter Chrysler actually grew their fortunes during the Great Depression.
The Federal Reserve could have prevented deflation by preventing the collapse of the banking system or by counteracting the collapse with an expansion of the monetary base, but it failed to do so for several reasons. The economic collapse was unforeseen and unprecedented.
Farm Families and the Great Depression
Farmers could grow their own food in large gardens and raise livestock to provide meat. Chickens supplied both meat and eggs, while dairy cows produced milk and cream. Many women had sewing skills and began producing much of their family's clothing.
Many families sought to cope by planting gardens, canning food, buying used bread, and using cardboard and cotton for shoe soles. Despite a steep decline in food prices, many families did without milk or meat. In New York City, milk consumption declined a million gallons a day.
What was the safest investment during the Great Depression?
Many people who owned stocks that went down a lot would have been OK eventually, except they bought on margin and were ruined. The best performing investments during the Depression were government bonds (many corporations stopped paying interest on their bonds) and annuities.
| Company | Industry | Return, 1932 to 1954 |
|---|---|---|
| Truax Traer Coal | Coal | 30,503% |
| International Paper & Power | Paper, hydroelectric power | 30,501% |
| Spicer Manufacturing | Auto parts | 26,221% |
| Bulova Watch | Watches | 24,146% |
Margin trading offers greater profit potential than traditional trading but also greater risks. Purchasing stocks on margin amplifies the effects of losses. Additionally, the broker may issue a margin call, which requires you to liquidate your position in a stock or front more capital to keep your investment.
It became evident after a sharp decline in stock prices in the United States, leading to a period of economic depression. The economic contagion began around September 1929 and led to the Wall Street stock market crash of 24 October (Black Thursday).
What didn't cause the Great Depression? The stock market crash in 1929 did not start the Great Depression, although many people think that is the case.
Though after the war he read that 5–10 million people likely died during the Great Depression in the US.
The rising share prices encouraged more people to invest on the hope that share prices would rise further. Speculation thus fueled further rises and created an economic bubble. Because of margin buying, investors stood to lose large sums of money if the market turned down or even if it failed to advance quickly enough.
The crash lasted until 1932, resulting in the Great Depression, a time in which stocks lost nearly 90% of their value. 9 The Dow didn't fully recover until November of 1954.
The slide continued through the summer of 1932, when the Dow closed at 41.22, its lowest value of the twentieth century, 89 percent below its peak. The Dow did not return to its pre-crash heights until November 1954. The financial boom occurred during an era of optimism.
But some investors built their wealth during this era. Jesse Lauriston Livermore was one of those people. He wasn't afraid to short stocks and leaned on technical analysis for his investing decisions. Jesse's returns from the Great Depression earned him the nickname The Great Bear Of Wall Street.
Were there still rich people in the Great Depression?
The Great Depression is thought to have devastated all social classes in the United States; however, the upper classes retained majority of their financial wealth and lower classes greatly suffered. The stock market crash of 1929 was considered to be the dawning of the Great Depression.
Several individuals who bet against or “shorted” the market became rich or richer. Percy Rockefeller, William Danforth, and Joseph P. Kennedy made millions shorting stocks at this time. They saw opportunity in what most saw as misfortune.
Deposits Are Protected by the FDIC. This is overwhelmingly the main form of protection that consumers have in case their banks fail due to an economic downturn or other issue. The Federal Deposit Insurance Corporation (FDIC) is a semi-private organization that was created in the wake of the Great Depression.
The depressed economy caused many banks (especially small banks) to go bankrupt. At that time there was no deposit insurance, so many people withdrew their deposits from banks and kept their money as currency. Many bank runs occurred, as depositors were wary of bankruptcy.
Despite the widespread impact of the Great Depression in America, two industries did not suffer. These industries included entertainment and alcohol. Alcohol, although previously prohibited in the 18th Amendment years earlier, was made legal to produce and sell again with the passage of the 21st Amendment in 1933.
