Explain the main factor that led to the great dipression of 1929
Answers
Explanation:
1. Stock Market Crash of 1929 - Many believe erroneously that the stock market crash that occurred on Black
Tuesday, October 29, 1929 is one and the same with the Great Depression. In fact, it was one of the major causes that
led to the Great Depression. Two months after the original crash in October, stockholders had lost more than $40
billion dollars. Even though the stock market began to regain some of its losses, by the end of 1930, it just was not
enough and America truly entered what is called the Great Depression.
2. Bank Failures - Throughout the 1930s over 9,000 banks failed. Bank deposits were uninsured and thus as banks
failed people simply lost their savings. Surviving banks, unsure of the economic situation and concerned for their own
survival, stopped being as willing to create new loans. This exacerbated the situation leading to less and less
expenditures.
3. Reduction in Purchasing Across the Board - With the stock market crash and the fears of further economic woes,
individuals from all classes stopped purchasing items. This then led to a reduction in the number of items produced
and thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying for items
they had bought through installment plans and their items were repossessed. More and more inventory began to
accumulate. The unemployment rate rose above 25% which meant, of course, even less spending to help alleviate the
economic situation.
4. American Economic Policy with Europe - As businesses began failing, the government created the Smoot-Hawley
Tariff in 1930 to help protect American companies. This charged a high tax for imports thereby leading to less trade
between America and foreign countries along with some economic retaliation.
5. Drought Conditions - While not a direct cause of the Great Depression, the drought that occurred in the
Mississippi Valley in 1930 was of such proportions that many could not even pay their taxes or other debts and had to
sell their farms for no profit to themselves. The area was nicknamed "The Dust Bowl."
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