Stock market crash of 1929

Definition

The stock market crash of 1929 was a major financial disaster that occurred in late October 1929, marking the beginning of the Great Depression. It involved a rapid decline in stock prices, leading to widespread panic among investors and the collapse of banks and businesses. This crash was a significant factor that triggered a decade-long economic downturn, impacting unemployment rates, consumer spending, and international trade.

5 Must Know Facts For Your Next Test

1. The stock market crash began on October 24, 1929, known as Black Thursday, but it intensified on Black Tuesday, October 29, when panic selling drove prices down sharply.
2. At its peak before the crash, the stock market had seen unprecedented growth during the 1920s, which led to speculative investments that were unsustainable.
3. Many banks failed due to their investments in the stock market and inability to recover funds after the crash, leading to widespread loss of savings for individuals.
4. The effects of the crash were not confined to the United States; it had global repercussions that contributed to economic downturns in several other countries.
5. Following the crash, consumer confidence plummeted, causing a significant drop in spending and investment that further deepened the economic crisis.

Review Questions

• How did speculation and margin buying contribute to the stock market crash of 1929?
  • Speculation fueled by margin buying played a significant role in creating an unsustainable bubble in stock prices leading up to the crash. Investors borrowed money to buy stocks with the expectation that prices would keep rising. When prices began to fall, those who bought on margin faced immediate financial distress as they were unable to repay their loans. This selling frenzy contributed to a rapid decline in stock prices and ultimately led to the crash.
• Discuss the immediate economic impacts of the stock market crash on American society in the early 1930s.
  • The immediate economic impacts of the stock market crash were severe and widespread. Many people lost their life savings as banks failed or closed due to their investments in stocks. Unemployment rates skyrocketed as businesses shut down or reduced their workforce due to declining consumer spending. Additionally, there was a significant drop in production and trade, leading to an overall stagnation of the economy that set the stage for the Great Depression.
• Evaluate how the stock market crash of 1929 influenced government policy changes in response to economic crises in subsequent decades.
  • The stock market crash of 1929 had a profound impact on government policies regarding financial regulation and economic intervention. In response to the financial chaos and widespread suffering during the Great Depression, the U.S. government implemented several reforms aimed at stabilizing the economy and preventing future crashes. This included establishing regulations on banking practices, such as the Glass-Steagall Act which separated commercial and investment banking. The experience also led to a more active role for the federal government in managing economic crises, laying the groundwork for modern economic policy.

Related terms

Great Depression: A severe worldwide economic downturn that lasted from 1929 to the late 1930s, characterized by high unemployment, low consumer spending, and significant declines in industrial output.

Black Tuesday: October 29, 1929, known as Black Tuesday, was the day the stock market crashed most dramatically, with millions of shares traded and billions of dollars lost in a single day.

Margin Buying: A practice where investors borrow money to purchase stocks, which contributed to inflated stock prices and ultimately played a role in the stock market crash.