HOW THE STOCK MARKET CRASH OF 1929 PLAYED A PIVOTAL ROLE IN THE TRANSITION BETWEEN THE ROARING TWENTIES AND THE GREAT DEPRESSION?
Was the Stock Market Crash the ONLY factor which caused the Great Depression?
No. The Stock Market crash of 1929 did not create the Great Depression, but it started a sequence of events that eventually culminated with the Great Depression. To understand what caused the Great Crash of 1929, it is important to go back a decade earlier, where American confidence grew so high that it seemed that good times would last forever.
Speculation and Buying on Margin
People had faith in the ‘bull market’, which led to speculate on the rising share prices.
This type of market, led a way of buying shares known as buying on margin. By buying on margin, the investor required to put only part of the money, as low as 10%, with their broker funding the rest. |
Little Government Intervention
Calving Coolidge became president in 1923. He typifies the ‘laissez faire’ economics of the 1920s. Coolidge is famous for saying “business in America is business.”
Same as his predecessor, Herbert Hoover did not want to regulate the market. He thought that, eventually, the market will correct itself. |
Calvin Coolidge
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Herbert Hoover
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The Great Crash of 1929
· Black Thursday: October 24th of 1929
o The bubble finally burst. Stocks greatly dropped and people panicked. Many investors gathered outside of Wall Street desperate of news. A group of bankers, led by Charles Mitchell, tried to regain the confidence of investors by inserting more than 250 million of dollars in key stocks. · Black Monday: October 28th of 1929 o The stock market falls more than 22%, the highest one-day decline in United States history. · Black Tuesday: October 29th of 1929 o Panicked Investors sell more than 16 million of shares, setting a record. Market is down by more than 12% |
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Foner, Eric. Give Me Liberty! 4th ed. New York: W. W. Norton & Company, 2014.
Galbraith, John. The Great Crash of 1929. New York: Mariner Books; Reprint edition, 2009.
Gregory Mankiw and Laurence Ball, Macroeconomics and the Financial System, 2nd ed. (New York: Worth Publishers, 2011), 524-41.
Hulbert, Mark. “Scary 1929 Market Chart Gains Traction.” marketwatch.com. February 11, 2014. Accessed April 08, 2015. http://www.marketwatch.com/story/scary-1929-market-chart-gains-traction-2014-02-11.
Schwert, G. William. “Margin Requirements and Stock Volatility.” Journal of Financial Services Research 3, no. 2 (December 1989): 55-56. Accessed April 07, 2015. http://link.springer.com/article/10.1007/BF00122799#page-1.
Hulbert, Mark. “Scary 1929 Market Chart Gains Traction.” marketwatch.com. February 11, 2014. Accessed April 08, 2015.http://www.marketwatch.com/story/scary-1929-market-chart-gains-traction-2014-02-11.
Viscusi, Kip, Joseph Harrington, and John Vernon. Economics of Regulation and Antitrust. 4th ed. Cambridge: MIT Press, 2005.