The Great Economic Depression

 The Great Economic Depression

1921 to 1929 saw an unbelievable economic boom with industrial growth reaching new heights. The economy saw a shift where savings reduced and expenditure increased. The consumption increased within the economy as the living standards were going up and credit was easier to avail.

The stock market particularly saw a huge boom and people saw the wall street as a way to become rich easily. In a period of only 5 years the stock market price multiplied by 4 times and in 1929 almost 2 billion dollars were invested into the stock market. The people who invested in the market were not just experts but also the middleclass people who borrowed money to invest in the market. This was again a very easy way of earning money because the returns that they earned were well over the interest rates.

The people believed that prices could go only one way and they kept investing into the stock market thinking that they could not go wrong. There were notions that the risk could be diversified by investing into different stock, and people did not want to believe otherwise. Some economists and investors however predicted a stock market crash but no one believed them and every increase in the market proved them wrong and gave people a reason to invest more and more.

The growth of the economy was based on false premise. The values in the market were highly inflated and this was pointed out by various economists like Roger Bapson who said in September, one month before the crash, “Sooner or later a crash is coming, it will be terrific, colossal even, the stock market will fall by its own weight and there will be a mad rush beyond anything we have ever seen.”

And so it happened, in October 1929 the stock market crashed and the economy saw a turmoil. Prices fell and stocks were dumped into the market. The market went out of control and prices dropped by almost 50% in 3 days. The loss from the stock market fall was over 30 billion $ which was 10 times more than the federal budget and more than the amount that the US spend on the entire world war 1.

People lost faith in the market and numerous attempts to restore the faith in the market failed. John D Rockefeller, the richest man in the world after losing 80% of his net worth went and purchased some stock publically to show that he still believed in the market, the president of the united states issued statements that the structure behind the economy was sound and the fall is only temporary and that the economy would resurface. Various attempts were made to bring the economy back to equilibrium, the major focus was to bring back the faith of people in the economy so that the consumption levels of the economy increases.