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The Stock Market Crash of 1929: Causes & Consequences

Discover the background of the 1929 stock market crash, fueled by easy credit, speculation, and margin buying, leading to Black Thursday and Black Tuesday. Learn how the crash impacted investors and the economy.

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The Stock Market Crash of 1929: Causes & Consequences

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  1. The Stock Market Crash 15.1

  2. Background • 1920s appeared to be a decade of prosperity = “The Roaring 20s” • Some believed economic problems existed below the surface • Most ignored these warnings

  3. Credit • Confidence in nation’s prosperity led many to purchase goods on credit • 1929: Credit purchases =$7 billion • Government encouraged credit spending by keeping interest rates low

  4. Problems With Easy Credit • Easy access to credit enabled people to buy things they couldn’t afford • Economic experts worried about debt • High consumer debt could cripple people in an economic downturn

  5. Bull Market • A market with an upward trend in prices • Seemed no end to 1920s Bull Market Bear Market • A market with a downward trend in prices

  6. Stock Speculation • = Playing the market by buying and selling stocks to make a quick profit – becomes popular • This stimulated economic growth • Rapid buying and selling inflated stock prices • Could be a problem if demand decreased.

  7. Margin Buying • = The practice of purchasing stocks with borrowed money • Speculators often buying stock with 10% down – borrowing 90% • Margin buying was great with a bull market But…. • Bear market would be investors deep in debt.

  8. The Crash • October 24, 1929: Black Thursday = The beginning of the crash • Rising interest rates made large numbers of investors nervous • - they began selling large # of shares • Leads confidence to drop and prices pushed lower and lower

  9. Black Tuesday • October 29, 1929 • Stock prices sank to shocking lows • 16 million shares of stock were sold in one day • = huge amount of debt

  10. Stock Brokers & Debt • Brokers began to contact investors who had purchased theirs on margin(by borrowing) • They demanded cash to cover their loans • Investors were unable to pay • = had to sell stocks at huge losses • By mid- Nov – leading stocks values were cut in half!!

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