Description Of Events That Led To America's Great Depression
In 1929 many business in America started to hang new signs on their doors
, announcing out of Business. Millions of workers were informed that the paycheck they were getting mostly at the end of the week was the last paycheck. Soon many people did not have enough money to pay for food, clothes, or housing. Many people joined long lines of jobless people, waiting to receive free meals given out by religious groups.
The 1920s was the time when America went from prosperity, big time and fun that comes with better live brought by technology to a landslide depression. A depression is the time when business activity slows down and many people are out of work. The depression that started in 1929 in America was called the Great Depression. America had seen depression before but none of them was as severe as the Great Depression.
The Stock Market Crash
People disagree about what caused the Great Depression, however most people agree that the depression began around the time of the stock market crash. The stock market is the place where shares of stock are bought and sold. Stocks are certificates of ownership in a company. Stock owners share in the risks of the business they own. If the business makes money, the stock owners also share in the profits.
A form of stock ownership began in America in the early 1600 with the founding of Jamestown. The number of companies that issued stocks grew with the new industries of the 1800s. With the prosperous years of the 1920s, the stock market continued to grow. Up until the late 1920s, most stock owners tried to buy stocks that paid them the most money, in the form of payments called dividends, every year.
They bought stocks and owned them for years on end. In the late 1920s however the behavior of people who were buying stocks begun to change for the worse. Many people began to play the stock market for some quick money instead of long term investments. People wanted to get rich quickly. So how did this playing of stock market happen?
People who participated in the stock market watched stock prices carefully. They tried to buy stocks when the prices were low. They hoped to sell the stocks after the prices had gone up. The difference between the buying price and the selling prices was their profit. Some people made millions of dollars playing the stock market.
As the number of people playing the stock market increased, stock prices rose. By the summer of 1929, some stock owners thought that stock prices had climbed as high as they were going to go. These people sold their stocks. Stock prices began to level off.
When prices stopped rising, more and more people decided to sell their stocks. In the autumn of 1929, stock prices started to fall. With the falling prices, stock owners panicked. Soon just about everone was trying to sell their stock. However, people had little hope that stock prices would go up again, so there were few buyers. Many people saw their fortunes fade before their eyes.
Where did all the money invested in the stock market go? In truth, a great deal of the money was not there in the first place. Many people had bought stocks on credit. Buying on credit means that buyers pay small amount of money when they purchase an item; they promise to pay the rest later. With credit buying, few people actually paid the full price for stocks. When prices began to fall, the broker demanded repayment of loans. Few stock owners had money to pay them. Brokers then sold the stock for whatever they could get.
And so the stock market crash marked the beginning of the Great Depression. However this may not have really caused the depression. Some people think the depression began because the industries produced more goods than people bought. Throughout the 1920s Americans eagerly bought vacuum cleaners, automobiles, and other factory goods. By the end of the 1920s, the demand for goods fell off. Warehouses were filled with unsold products.
When businesses could not sell their goods, they began to lay off or dismiss their workers. These unemployed people were not able to buy much more than the necessities of life. As more more people lost their jobs, even fewer goods were sold. Rising unemployment hurt business, leading to even more job layoffs.
Credit buying is another explanation for the Great Depression. As we have already discussed credit buying contributed to the stock market crash. However stocks were not only the items Americans bought on credit. Millions of people bought goods of all sorts by paying a small amount of their own money and borrowing the rest. Some people did not plan wisely and were not able to pay for what they bought on credit.
Other people lost their jobs and could not pay back their loans. Thousands of businesses closed when customers failed to pay their bills.
Certain banking practices also contributed to the Great Depression. Many people put their money into savings accounts. Savings accounts were not insured, or guaranteed against loss, in those days. Banks often used their customers savings to play the stock market. When the stock market crashed, many bank customers with savings accounts lost all their money.
Banks lost money in another way. Millions of Americans borrowed money from banks to buy goods or stocks. If these people were laid off from their jobs, they could not make loan payments to the banks. Then the banks lost money. Without this money, some banks had to close. People who had put money in the bank lost their savings when the banks closed just like that! The government did not lend money to the banks to keep them from closing. Many people think that this lack of help from the government contributed to the Great Depression.
And so from the booming economy of America in the 1920s to the bust in 1929 it all happened very quickly. People lost their homes, their farms, their businesses, and their jobs.
By 1932 nearly 12 million people were unemployed. Many unemployed people found themselves in long lines that covered city blocks moving slowly towards soup kitchens. These long queues or lines were called bread lines. Inside the soup kitchens were free food and, in the winter, warmth.
by: Dr Chris Kanyane
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