What Caused the Stock Market Crash of 1929? – HISTORY

The stock market crash of 1929, considered the worst economic event in world history, began on Thursday, October 24, 1929, with skittish investors trading a record 12.9 million shares.

On October 28, dubbed “Black Monday,” the Dow Jones Industrial Average plunged nearly 13 percent. the market fell another 12 percent the following day, “black tuesday”. While the crisis sent shock waves throughout the financial world, there were numerous signs that a stock market crash was on the way. what exactly caused the accident and could it have been prevented?

Reading: Why did the stock market crash in 1929

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there was a spike in the stock market before the crash

during the “roaring twenties”, the us. uu. the economy and stock market expanded rapidly and stocks hit record highs.

The Dow increased sixfold from August 1921 to September 1929, leading economists like Irving Fisher to conclude that “stock prices have reached what looks like a permanently high plateau.”

The market officially peaked on September 3, 1929, when the drop spiked to 381.

At the time, many ordinary working-class citizens had become interested in stock investments, and some bought stocks “on margin,” meaning they paid only a small percentage of the value and borrowed the rest of a bank or broker.

In addition, the general economic climate in the United States was healthy in the 1920s. Unemployment had fallen and the automobile industry was booming.

While the precise cause of the 1929 stock market crash is often debated among economists, there are several widely accepted theories.

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the market and people were too confident

Some experts argue that at the time of the crash, stocks were grossly overvalued and a crash was imminent.

That same sense of reckless overconfidence extended to average consumers and small investors as well, leading to an “asset bubble.” The crash came after a long period of market growth that generated overconfidence among consumers.

In fact, after 1922, the stock market had risen nearly 20 percent each year through 1929.

read more: here are warning signs investors missed before the 1929 crash

people bought stocks on easy credit

During the 1920s, there was a rapid growth in bank credit and easy loans. people encouraged by market stability were not afraid of debt.

The concept of “buying on margin” allowed ordinary people with little financial acumen to borrow money from their stockbroker and deposit as little as 10 percent of the value of the stock.

A similar type of overconfidence was seen in industries such as manufacturing and agriculture: overproduction led to a glut of items, including agricultural crops, steel, durable goods, and iron. this meant that companies had to purge their supplies at a loss and share prices suffered.

the government raised interest rates

In August 1929, just weeks before the stock market crashed, the Federal Reserve Bank of New York raised the interest rate from 5 percent to 6 percent.

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Some experts say this sharp and sudden increase dampened the enthusiasm of investors, which affected market stability and sharply reduced economic growth.

Another factor was an ongoing agricultural recession: Farmers were struggling to make an annual profit to keep their businesses afloat. some believe that this agricultural slump affected the country’s financial climate.

the panic made the situation worse

Public panic in the days following the stock market crash saw hordes of people flocking to banks to withdraw their funds in a series of “bank runs,” with investors unable to withdraw their money because government officials bank had invested the money in the market.

This led to massive bank failures and further deepened an already dire financial situation.

Many analysts say the financial press also played a key role in contributing to the sense of panic that exacerbated the stock market crash.

the day before black thursday, the washington post ran the headline: “huge selloff creates near panic as stocks crash” while the new york times announced: “stock prices plunge in a strong liquidation”.

there was no single cause for the turmoil

Most economists agree that several factors combined led to the stock market crash of 1929.

A booming, overheated economy that was destined to crash one day likely played a role. Equally relevant issues like overvalued stocks, public panic, rising bank loans, a farm crisis, higher interest rates, and a cynical press added to the mess.

many investors and ordinary people lost all their savings, while numerous banks and companies went bankrupt.

While historians sometimes debate whether the 1929 stock market crash directly caused the Great Depression, there is no question that it greatly affected the American economy for many years.

Source: https://amajon.asia
Category: Stocks