The US Wall Street Crash of 1929, otherwise known as “Black Thursday” occurred on October 24, 1929, and is the most damaging stock market crash in the history of the United States. According to the website of the London Times, It is said that this crash heralded a consequential depression of the US economy that lasted for 10 years. It is said that the antecedent reason for the crash of the stock market was the people continued to purchase stocks, as they were attracted to the continuous rising of stock prices owing to the growing industrialization of the United States. However, many of the purchases of stocks were made using loans – people began to borrow heavily to finance the purchase of their stocks. The gains in stock prices continued despite the fact that just prior to this period, the US economy was sluggish at the time, and thus, in 1929, the stock market bubble burst. Stock prices began to tumble by as much as 90%, and even if several prominent businessmen continued to purchase stocks in order to stem the price slide, the price of stocks ultimately plummeted amidst massive selling.
Consequences/Effects of the US Wall Street Crash of 1929
When banks tried to go after the stock market investors who loaned heavily to purchase and invest in stocks, they discovered that the investors had nothing of value as the prices of their stocks declined substantially (the decline was said to be as high as 80% from the original values). In the website of PBS, it is stated that when news of the banks’ inability to collect on these loans went public, the depositors started going to the banks to withdraw their funds and close their accounts. Many of these banks had also invested in the stock market, and thus this portion of their asset profile was now worthless. When President Franklin D. Roosevelt assumed office in 1933, the banking system of the United States was in dire straits indeed. The main consequence of the crash was that a period of depression followed. It is estimated that about 20,000 companies closed shop in 1929. By the close of 1932, a total of 12 million Americans became unemployed, with the unemployment rate up to 25%. The average annual family income fell from $2300 in 1929 to $1600 in 1932. A lot of American families, with their breadwinners unable to find work, fell in line to eat free bread and soup at certain charity organization venues (Kelly, 2010, 55-56).
The Crash also led to the decline of the popularity of President Herbert Hoover, who believed that the economy would soon return to normal. According to the website of the Dhahran British Grammar School, he believed that government should not interfere with the business sector. However, he did move to promote employment with the construction of the Colorado Dam. Generally, the public resented his policies, and when he decided to run for President for a second term, his campaign failed. It is said in the website of Time Magazine that Hoover’s campaign train was often pelted with fruit and other objects. Crowds jeered at him while he spoke, and it is said that spikes from the rails had to be removed before his train passed. Hoover was not re-elected to a second term. The new President was Franklin D. Roosevelt, who was elected on his promise of fixing the broken economy through his plan called the “New Deal”.
As the economy of the United States contracted, other economies around the world were affected too by the crash. Per the website of European History, the United States continued to loan out funds to Germany before the onset of the crash, to cover its reparations to the French and British post World War I. Due to the loss of funds from the United States, German banks and the German economy strained to retain their solvency by cutting down on their services to the public. However, by 1932, many German banks became insolvent, and the German economy likewise spiraled into a depression. Great Britain and France also soon entered into their own economic depressions. With the major economies of Europe in trouble, soon most of the economies in Europe contracted as well.
In rural America, there were many new emigrants to the United States who had just loaned money from the banks to purchase land. With the depression, the amount they owed the banks was far greater now than the value of the land. Thus, they had to pay off their loans while holding pieces of land that were literally worthless already. In general, the main effect of the US Wall Street Crash of 1929 was that the US economy contracted, and all other economies around the world, especially in Europe, that had substantial exposures in the US economy (such as loans from the US economy, stock ownership in US companies, partnerships in US businesses) all contracted during the subsequent Depression.
Atherton, Mark. The Beginner’s Guide to Stock Markets. 2009. Web. Accessed 25 July 2015.
European History. Module 04: The End of Optimism? The Great Depression in Europe. Web. Accessed 25 July 2015.
Gibbs, Nancy. When New President Meets Old, It’s Not Always Pretty. 2008. Web. Accessed 25 July 2015.
Kelly Nigel. Modern World History. 2009. Oxford, UK: Heinemann Publishing.
PBS. Stock Market Crash. 2015. Web. Accessed 25 July 2015.