DEPRESSION BASICS

The Stock Market Crash of 1929 was not the cause of the Great Depression, but was the result of fundamental weaknesses in the economy of the United States and other major nations of the world.

The major causes of the Depression included over speculation in stocks, land, and other investments; too much credit supplied to consumers; farmers producing more but wages not keeping up with expenses; an increase in business inventory; curtailed production resulting in unemployment; wages were not keeping pace with the cost of living; the unequal distribution of wealth throughout the 1920s.

The effects of the Great Depression was huge across the world. Not only did it lead to the New Deal in America but more significantly, it was a direct cause of the rise of extremism in Germany leading to World War II.

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.Sponsored LinksGreat Depression EconomyLearn All About Economic Depression at Ask.com. Get Answers Today!www.Ask.com2009 Will Be Like 1929.Read Chapter 8 of "America's Great Depression." We guarantee déjà vu.www.Mises.orgDepression FactsLearn all about Depression. Get Free expert advice, news & more!www.everydayhealth.com

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 Hawley-Smoot 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 ConditionsWhile 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. This was the topic of John Steinbeck's The Grapes of Wrath. The stock market crash of 1929 was not the cause of the Depression but it had a negative effect on people’s perceptions which could have caused a decline in real consumer spending which occurred in late 29 and 1930. People Hoarded money. People hoard because they want their assets in a readily convertible form such as cash. Saving and hoarding are different. Saving it permits it to circulate as a bank gives out loans, mortgages, etc. It is being spent. Hoarding is not an evil in itself since hoarded money is out of circulation making money in circulation more valuable