Entering the Great Depression 1. How did the Great Depression begin? Investors begin to worry the boom would end and began selling stocks. Investors paid their loans too late to help the economy. People were not willing to sell their stock. Farmers had to sell stock to pay for farm equipment.
The Great Depression began in October 1929, with the stock market crash commonly known as "Black Tuesday." Prior to this, the 1920s had seen a period of economic prosperity and rapid growth, known as the Roaring Twenties. During this time, stock prices were escalating, and many people invested heavily in the stock market, often buying stocks on margin, which allowed them to purchase stocks with a small down payment and borrow the rest.
However, underlying economic weaknesses and imbalances were building up. Industries such as construction and automobile manufacturing were over-expanded, and the agricultural sector was struggling due to overproduction and falling prices. Additionally, income inequality was rising, with wealth concentrated in the hands of a few.
The stock market crash on October 29, 1929, was triggered by a wave of panic selling as investors lost confidence in the stock market's future. With investors worrying about the sustainability of the economic boom, they began rapidly selling their stocks, causing prices to plummet. As stock prices declined, investors who had purchased stocks on margin were unable to repay their loans since the value of their stocks was below what they owed.
This sudden collapse of stock prices had a ripple effect throughout the economy. Bank failures and the loss of savings wiped out the financial security of many individuals and businesses. People started losing their jobs as companies faced financial difficulties and had to cut back on production. As unemployment rose, consumer spending decreased, leading to further economic contraction.
In agricultural areas, farmers struggled with falling crop prices and the inability to repay loans. Many had to sell their stock and farm equipment to cover their debts, exacerbating the economic crisis in rural areas. The combination of these factors, along with governmental policies and global economic events, led to a deep and prolonged economic downturn known as the Great Depression.