Why is the Stock Market Crash of 1929 so memorable? There were bigger crashes with bigger consequences, so why? Why is this crash ingrained in every American’s brain? It was the starting point of the drastic change in every American’s life. The stock market crash happened between The Roaring Twenties, a period known for its fashion and growth, and the Great Depression, years of unemployment and starvation. This essay will be about the components of the stock market crash, which will be the causes of the stock market crash of 1929, the stock market crash itself and the effects of it.
Life after WWI, also known as the Roaring Twenties, was amazing. People, married or single, lived in prosperity while technology was booming. The radio was invented while cars, phones and air travel became accessible by the public. In general, the American economy was in good shape. To show this, The Dow Jones Industrial Average, the stock index showing the status of America’s economy, quadrupled during the 1920s. Speaking of the stock index, since people had more money to spend, Americans became investors in stocks. Many people invested in stocks on margin, where investors paid part of the total price (usually 10%) and used borrowed money for the rest. A large inflow of money from investing on margin came to the stock market and stock prices rose significantly. The stock prices kept going up to the point where people never thought the prices will ever go down. People unwisely risked their entire life by investing in stocks.
The Federal Reserve did not like this rise in the stock market. Resource was taken away from “productive uses, like commerce and industry.” [Federal Reserve History]. Therefore, the Federal Reserve decided to tighten the monetary policy and told reserve banks to stop credit from going to banks who loaned to stock investors. The policy had a deleterious effect to America’s economy. Things don’t stop here though. The Federal Reserve decided to take it a step further and raised the interest rate a few times to fix the trade-off problem. This action had severe consequences. Not only did the tight monetary policies hurt the international economy due to the gold standard but it also reduced the amount of loans granted along with the liquidity of corporations who finance brokers/dealers.
On September 1929 came the ups and downs of the stock market prices. The investors’ confidence began going down. Some investors realized that this “stock boom was actually an over-inflated speculative bubble.” Then came October 23th and 24th, 1929 where stock prices fell staggeringly. Everyone started selling their stocks to get their money as soon as possible. On came Black Monday and...