5 causes of the Great Depression?

Answer 1

1. Stock Market Crash of 1929

Many believe erroneously that the Stock Market crash that occurred on Black Tuesday, October 29, 1929 is one & the same with the Great Depression. In fact, it was only one of the major causes that led to the Great Depression, however it was the first. Two months after the original crash in October, stockholders had lost more than $40 billion dollars. Even though the stock market began to regain "some" of its losses, by the end of 1930, it was just not enough & America truly entered what is now called the "Great Depression".

2. Bank Failures

Throughout the 1930s over 9,000 banks failed. Bank deposits were uninsured in this time & as banks failed people simply lost any savings they may have acquired. Surviving banks, unsure of the future economic situation & concerned only for their own survival, stopped creating any new loans. This exacerbated the situation leading to even less & less capital expenditures.

3. Reduction in Purchasing Across the Board

With the stock market crash & the fears of further economic woes, individuals from all classes stopped purchasing items. This in turn led to a reduction in the number of items produced & therefore a reduction in the workforce. As people lost their jobs, they were unable to keep up with any installment plans & their items were repossessed. More & more inventory began to accumulate. The unemployment rate rose above 25% which meant, of course, even less spending to help alleviate the economic situation.

4. American Economic Policy with Europe

As businesses began to fail, the government created the Smoot-Hawley Tariff in 1930 to help protect American companies. This levied very high taxes for any imports thereby leading to less trade between America & all other foreign countries along with some economic retaliation.

5. Drought Conditions

While not a direct cause of the Great Depression, the drought that occurred in the Mississippi Valley in 1930 was of such proportions that many could not even pay their taxes or other debts & had to sell their farms for no profit to themselves. This natural disaster was aided by poor farming practices that resulted in massive dust storms that swept across The Great Plains, pushing people off their farms & they headed west to escape. This was the topic of John Steinbeck's novel The Grapes of Wrath.