Investing and Financial Markets
History of the United States
Economics
Stock Market
Decade - 1920s

What did the crash lead to?

Answer

Wiki User
01/12/2012

The crash was a rapid and sudden lack of liquidity (no cash in the system). In the 1930s it led to runs on the banks, margin calls on stocks, foreclosures and deleveraging which led to massive unemployment.

You do not keep your money under your bed and spend what you have, there would be no crash and the economy would also grow much more slowly.

We store money in banks, retirement accounts and in the value of our homes. We expect the money deposited at the bank to be there, but the bank lent it to someone else (so they could finance a house or a car). We spend less today so that we can retire (stop working) and still buy the things we need. That money does not sit still, it is also lent to others (to start businesses or expand the infrastructure of existing businesses).

When there is a crash, many people sold at the same time, lowering the price of products or stocks. When people need money to make up the difference in their positions, they cannot borrow it (speculative borrowing is dangerous and few banks allowed it) so they take it out of their accounts (if they have it). If everyone is trying to get their money out of the banks at the same time, it is called a run on the bank (run because the bank only has enough for the first withdrawals, afterwards they simply say, "your money isn't here").

The crash led to very high unemployment.