The Effects of the Great Depression

The Great Depression was a period of economic struggle lasting from 1929 to 1939. Wall Street spiraled into panic and it cost investors and businesses billions of dollars. Millions of jobs were lost and unemployment reached all time lows. The stock market suffered greatly as less and less people could afford to become investors. The economic difficulties also led to emotional suffering and the morale of the public was low.

The real catalyst of the Great Depression was the stock market crash of October 1929. Before the crash, there was a peak, the DOW increasing by 6 times between 1921 to August 1929. Investors became comfortable, predicting that the market would stay high for a long time. Several regular citizens decided to purchase stocks on margin (borrowing most of the money from banks or brokers and paying a small percentage themselves). Shares were very overpriced, which doomed the market to an eventual decline. People were overconfident in the stability of the market, people were not afraid of debt because of the current state of the market when it was increasing around 20% every year. Some businesses had problems with overproduction, which made them have to purge their product, lowering the value of their stocks.

Soon before the crash, the interest rate was raised from 5% to 6%, which made investors less confident and enthusiastic. There was also agricultural recession going on at the time. Farmers couldn’t make enough profit to sustain their businesses. When the decline started, people began panicking, only causing the situation to worsen. People rushed to withdraw their funds from banks and investors couldn’t get their money back because the bank had already invested it. This caused bank failure. The reporting and headlines about the crash only worsened the panic. All of these factors led to the crash. Investors, businesses, ordinary people and banks lost their entire savings, which caused widespread bankruptcy.

This caused greatly reduced consumer spending because ordinary people who had invested lost all of their money. The cost of stocks increased to much higher than their actual value. Businesses who went bankrupt couldn’t pay their employees which caused them to be forced to lay off thousands of workers. Even workers who still had jobs had decreased wages. Unemployment rates skyrocketed, along with the worsening agricultural crisis.

Farmers were already struggling to make a profit, but now even less people were buying their products, which meant they had to decrease food prices. Droughts at the time also affected the production of crops. Banks at the time had many large loans that they could not liquidate. Investors began selling greatly overpriced stocks. Millions of shares became worthless and investors who bought on margin were completely wiped out. Many people fell into debt, especially those who bought on credit. Because of the fixed currency exchange, the depression spread throughout the world, especially to Europe.

Job loss greatly decreased the morale of the country. Money was tight for most households, and unemployment was essentially stagnation because businesses couldn’t afford to hire any new workers. Many families figured out creative ways to feed and provide for each other. Inexpensive foods like potatoes and hotdogs became common to use in meals, as did ways of preserving food longer such as salting meats.

In conclusions, the Great Depression caused panic and pessimism to sweep through the country with force. The economy was hurt badly, and it may have seemed that it would never recover. The people of the time had to persevere and work hard.