causes of the great depression

1929 Stock Market Crash – The Boom-Bust Theory

The Wall Street Crash of 1929 followed one of the most dramatic economic booms that America and the world had ever seen. As everything was going so well, millions people decided to invest in the stock market. Banks were prepared to lend money to people investing in stocks as the stock market kept going up. Therefore people borrowed more and more money that caused stock prices to skyrocket to unrealistic highs. The rapidly rising share prices just gave people more confidence and persuaded more people to borrow money to invest.

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However this economic bubble was about to come crashing down. The crash began on October 24th 1929. The bubble burst as 12,894,650 shares were traded in the space of one day. This selling panic was due to people trying desperately to cash in their shares before they became utterly worthless. Over the next few days over 30 million shares were traded and the majority of investors were ruined as share prices collapsed.

As the banks had lent out a lot of money to stock market investors, many went broke. A total of 10,000 banks collapsed worldwide during the great depression. Millions of people lost their life saving and people around the world suffered mass unemployment as business lost their credit lines and were forced to close.

The boom-bust theory is that a bust follows a boom. In other words, if something increases it will eventually decrease. The more dramatic the increase, the more dramatic the decrease will be.

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