In the 1920s,
a large number of people invested in the stock market. At the time
many bought on the margin, meaning these people borrowed money from
loan companies in order to buy stocks. The reason for this was because
the stocks in the early 1920s increased at a very high level. If someone
had taken out their stocks at any time, they would have received a
good amount of money for it, more then paid in the first place. And,
because they had borrowed the money, they were able to pay back the
loans, making more money than they ever would have otherwise.
In the late 1920s, the production of the companies became higher than
the demand by consumers. These companies downsized, causing a surplus
amount of people without work. As people lost jobs, they could not
pay off debts owed to loaning companies. Many were forced to sell
their belongings, homes, farms, and, most importantly, stock shares.
Panic set in among Americans, and they began to sell their shares
of stock all at the same time. Since everyone was selling, few, if
any, were buying. On October 29, 1929, the stock market crashed, and
continued to fall afterward (beginning in 1929 with the Dow-Jones
at 381, until 1932 with the Dow-Jones at 41). Nothing was done for
a period of time afterward, because many believed it would rise again
as it always had prior to the crash.
This lack of production hurt U.S. commerce with European nations,
while the European countries were in need of our production as well.
This market crash became a problem for nearly all of the major nations.
This aspect of the crash led to a domino effect for America and European
countries. As a result of the lack of American production in Europe,
and visa versa, these aided in Depression for all of the countries
During this period of panic, people wanted their money in their possession,
but the banks had also invested a large quantity in the stock market.
Therefore, when people went to get their money out of the banks, their
money was in circulation, and not present in the banks for the people
Essentially, a never ending cycle was created. Businesses could not
sell, leading to job loss, leading to people who could not buy, and
we could not get production from Europe, who in turn could not recieve
our production as well. By the time anything was done about these
cycles, the problem had been deepened too much to fix in a short amount