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. This crash was characterized by a rapid decline in stock prices, leading to massive losses for investors and shaking the foundations of the American economy. The panic surrounding the crash triggered widespread bank failures, unemployment, and significant reductions in consumer spending, all of which contributed to the economic downturn that followed.

5 Must Know Facts For Your Next Test

1. The stock market crash began on October 24, 1929, known as Black Thursday, but reached its peak with Black Tuesday on October 29, leading to an estimated $30 billion loss in market value.
2. Prior to the crash, the stock market experienced a significant boom during the 1920s, with rampant speculation and increased investments from everyday people, which inflated stock prices beyond their actual worth.
3. The crash led to a wave of panic selling among investors who rushed to liquidate their holdings, causing further declines in stock prices and contributing to a lack of confidence in the financial system.
4. In response to the crash and its aftermath, many banks failed as depositors withdrew their savings, leading to a severe contraction in credit and exacerbating the economic downturn.
5. The stock market crash was a pivotal event that highlighted underlying weaknesses in the U.S. economy, including overproduction, underconsumption, and excessive borrowing.

Review Questions

• What were some of the immediate effects of the stock market crash of 1929 on American society and the economy?
  • The immediate effects of the stock market crash included widespread panic among investors, leading to a rush to sell stocks and exacerbating declines in prices. Many individuals lost their life savings as banks failed and unemployment rates skyrocketed. The loss of confidence in financial institutions resulted in decreased consumer spending and business investment, which further deepened the economic crisis.
• Analyze how speculation contributed to the conditions leading up to the stock market crash of 1929.
  • Speculation played a crucial role in creating an unstable financial environment prior to the stock market crash. During the 1920s, many investors bought stocks with high hopes of quick profits, often ignoring fundamental company valuations. This led to inflated stock prices detached from actual business performance. When confidence waned and prices began to drop, panic set in among speculators trying to salvage their investments, culminating in a massive sell-off that triggered the crash.
• Evaluate the long-term implications of the stock market crash of 1929 on government policy and economic regulations in subsequent decades.
  • The stock market crash of 1929 had profound long-term implications for government policy and economic regulations. In response to the financial disaster and ensuing Great Depression, significant reforms were implemented during the New Deal era under President Franklin D. Roosevelt. These included stricter regulations on banking and securities markets aimed at preventing similar crashes in the future. The establishment of agencies such as the Securities and Exchange Commission (SEC) signified a shift towards greater government oversight in financial markets to protect investors and promote stability.

Related terms

Great Depression:

A severe worldwide economic depression that took place during the 1930s, characterized by high unemployment, falling prices, and widespread poverty.

Black Tuesday:

October 29, 1929, the day when stock prices plummeted dramatically on the New York Stock Exchange, marking the most catastrophic day of the crash.

Speculation: The practice of buying stocks with the expectation that their prices would rise, often without regard for the company's actual performance or value.