The Great Depression
When a person hears the words “The Great Depression,” almost everyone thinks of the worst economic times in the United States. The Great Depression started in the late 1920s and continued on until the early 1940s. It is known as being “the deepest and longest-lasting economic downturn in the history of the western industrialized world” (History.com). We can learn from the occurrences during The Great Depression that government involvement is the deciding factor of whether an economy will expand or continue to shrink during a recession.
The 1920’s, also known as the Roaring Twenties, were fantastic times for the economy. People were buying extravagant things such as automobiles, and investing in the stock market in order to make big money. Many of the new, expensive things that people purchased were bought on credit. People even bought stocks “on margin,” which means with borrowed money. All this extravagance would soon disappear and everything people bought on credit or margin would soon come back to haunt them.
October 29, 1929, what would later be known as “Black Tuesday,” was the day that the stock market crashed and The Great Depression started. The stock market prices had continually gone up and up to a point where there was no possible way that businesses were going to make that much in their future earnings. Investors began to sell their stocks in large quantities. Around 16 million shares were sold just on “Black Tuesday”. Because of this, millions of shares ended up becoming worthless. Those investors who had bought their stocks on margin ended up becoming completely wiped out because of this day. Personal investors were not the only people to invest in the stock market; banks also did. Banks invested large amounts of their depositors’ money into the stock market. These banks had to close because they lost all that money in the crash.
During this time, 1929, the United States had not created the Federal Reserve yet, nor had it created regulations on banks or insured banks so that depositors could get their money back up to a certain amount if the bank closed. So these banks closing meant people lost all the money they had deposited there. Also, the fact that banks were closing caused people to panic and run to their banks to withdraw their money. The problem with that is the fact that banks use depositors’ money to loan out to other people so they don’t actually have all the depositors’ money at the bank. So the people at the back of the lines didn’t get their money back because the bank did not have enough money. Those people also lost all of their money that was in the bank. The banks from which people withdrew all of their money from were forced to close because they no longer had any depositors, meaning they no longer had money. By 1933, 11,000 out of the 25,000 banks in the United States had closed (Nelson).
With the crash of the stock market and the closing of many banks, several people lost faith and...