There was no single cause for the crisis because the economy and stock market are intertwined with complicated and fluid issues such as international relations, consumer behavior, and laws. But, thanks to the rise of cryptocurrencies, financial opportunities, and technology, these variables have become even more complicated.
Market crashes are more difficult to predict than you would believe. When looking back at prior market crashes, selective attention is highly common, but it is extremely difficult to forecast in real-time. Anyway, don’t forget that the stock market took over 25 years to recover fully.
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The 1929 stock market crash is regarded as the worst disaster in the US stock market history. The stock market dropped 11% on October 24, 1929. On October 28, 1929, the losses continued when the stock market dropped another 13%. Then, on October 29, what became known as “Black Tuesday,” the market plunged another 12%, igniting what is known as the Great Depression.
Reasons for Wall Street Crash 1929
A series of events involving investors, regulators, and international relations caused the stock crash of 1929. Following are some of the reasons behind the great depression:
- As the economy grew in the early 1920s, investors and institutions poured money into the stock market. Most investors were unaware that many enterprises were overproducing at the time. Because they couldn’t keep up with production levels, several enterprises were selling their goods at a loss.
- The exercise of taking out a loan to buy stocks on margin can magnify gains and losses. When the market was up, this provided investors with more buying power, allowing them to inflate prices further, leaving many people in debt once the crash hit. Borrowing money from a stockbroker was normal back then, and you might get a loan with as little as 10% down. As a result of the surpluses, supply prices and stock prices have fallen.
- The Federal Reserve is in charge of ensuring that the financial system is safe and stable. The Fed does this in various ways, one of which raises or reduces interest rates. The Federal Reserve kept interest rates low throughout the 1920s. When the crash happened, they boosted interest rates, worsening the situation.
- Congress approved the United States Tariff Act of 1930, popularly known as the Smoot-Hawley bill, to boost domestic demand and alleviate overproduction difficulties. The bill’s impact backfired when multiple countries retaliated with their levies on US goods, causing imports to plummet by 40%. The losses on Wall Street have continued due to a lack of demand both domestically and internationally.
Effects of Wall Street Crash 1929
- By 1933, unemployment had dropped to 30%, or 15 million people, and half of the country’s banks had failed.
- It was even worse for African Americans, with over half of the unemployed. To get the United States back on the rails, FDR’s New Deal took some actions in 1933.
- The FDIC was established due to thousands of consumers withdrawing their money from banks as the stock market plummeted. The Securities and Exchange Commission (SEC) was also established to guard investors.
