How Did The Stock Market Crash Of 1929

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The Stock Market Crash of 1929 The 1920s, also known as the Roaring Twenties, was a time of soaring optimism. The economy was great, new technologies were introduced, consumer demands were high, and companies were flourishing; people believed nothing could go wrong and that this was a well deserved break after World War I. More specifically, the economy was at a record high of 381 points during September 1929, meaning it increased six-fold from August 1921. (Federal Reserve History) People were more invested in the economy than ever before by purchasing and selling stocks. Stocks were easy to buy because over 80 percent of it could be paid by loans, and a large amount of people used that to their advantage. With the economy at its all time …show more content…

Buying on margin is when an investor only pays 10-20 percent of their own money to purchase a stock and the other 80-90 percent is paid off in loans (Pettinger). At first, this seemed like a great idea because once the stock started to make money, paying off the loan would be easy, but it is not so easy when the stock makes little to no money. Money for these stocks was easily accessed which helped fuel the rising economy, but once the value of the stock declined investors had no way of paying off loans. (USA Today, 467) Buying on margin contributed to the collapse of the stock market because when stocks were seen to be gradually declining, investors called the brokers to request their portion of the stock in money, but the broker did not have it. This caused for many people to become bankrupt, unable to pay loans, and for consumer demand to shrivel, therefore less people were purchasing goods so less money was flowing into the economy. With little money streaming into the economy, stocks started to loss value until eventually there was none value left, leading to the stock market …show more content…

Brokers would purposely provoke investors saying that particular stocks would bring in massive amounts of wealth. That obviously drew in investors, but at the slightest decrease investors would sell the stock causing the value to alter. That was not the case for every situation. Most investors stayed really optimistic in their stocks, and would continually take out loans to further drive the value of their stocks up. According to Tejvan Pettinger at economicshelp.org, “The problem was that stock prices became divorced from the real potential earnings of the share prices,” (Pettinger). Meaning that the prices to purchase stocks were higher than the true possibility of an equal earning of income from the stock itself, essentially the stock cost more than it was worth. Investors were losing money, and pertained less and less income to be spent, again decreasing the amount of money being spent on consumer goods to increase the stocks’ value. Which, all-in-all, caused the stock market to collapse and lose great

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