What are 5 main causes for the Great Depression?

Question

What are 5 main flash points, causes, or reasons that caused/ led up to the Great Depression?

Answer 1

this site explains a bit about the great depression and you might want to check it to see if you can find what you are looking for .


The Great Depression was the worldwide economic downturn that began in 1929 and ended at different points in the 1930s. The economic events of the Great Depression are largely agreed upon and the agreement has remained essentially unchanged since study of the period began: a deflationary spiral forced dramatic falls in asset and commodity prices, dramatic drops in demand and acceto credit, and disruption of trade. However, the causes and relationship among them, as well as the role of government policy in causing or ameliorating the Depression, continue to be debated.

People have desired explanations for the Great Depression for many reasons. Debates in the 21st century about the best course of action to follow often use Depression examples (such as dire warnings of a second Great Depression if a specific agenda is not fulfilled.) Furthermore, economists trying to develop macroeconomic models use the ability to explain past events as evidence of validity.

Answer 2

The stock market crash was a symptom, the economy was sick before the crash, as the market was extremely over valued, and too many people bought on margin--meaning that they basically bought stocks hoping the price would continue to rise, so that they could sell and pay their bills--when the market corrected itself, panic ensued, and investors lost confidence, and they prices fell through the floor, meaning that investors (both individual and institutional) did not have enough to pay their margin, and went bankrupt. This hurt banking, whose main business is loans, and when people who held loans went bankrupt, the banks could not give their depositors their funds.

Out of this debacle came things like the Securities and Exchange Commission, that imposed limits of margins, and investing, and regulated banks, so that they could not use their depositors' money to play the stock market--though some of these rules have been changed recently.

Also, the FDIC was put into place, to insure banks against failures that happened in the early 30's.

All that said, prior to the stock market collapse, we already had the beginnings of the dust bowl in the west, due to over farming, and the fact that most farmers had not learned of crop rotation yet--to enrich the soil. There was a drought, and locust also, and those bad growing years, along with banks calling in their loans, when they got into trouble, contributed to the depression--causing many farm families to become displaced.

In addition, once things got bad, on both city and farm, there was little initial government response, which made things worse for those in trouble, and caused a domino effect of economic disaster.

Also, there are some who claim that the 1918 Flu Pandemic, and the impact of WWI, also hurt the economy, by disrupting the world economic base, and impacting the labor pool. And our goverment was also bogged down in a war in central america at the time, further stressing our resources.

But this is more than you probably wanted to know...

I do hope this helps.

Answer 3

I can't believe the answers people have given--not because they're incorrect, but because there's no explanation.

One of the problems with the free market (also known as capitalism), is there are periodic upswings and downswings in demand for goods and services. The answerer who referred to Keynes meant this: John Maynard Keynes was a very intelligent economist who realized this and said that the role of government should be to regulate--as a thermostat--the economy. When buying and selling got to be too hyper, and there was risk of inflation, the government could reduce the money supply or raise interest rates, which would make it harder to borrow to buy things. When buying and selling got to be too slowed-down (a.k.a. a depression or a recession--they're both the same thing), the government could lower interest rates, making it cheap and easy to borrow money to buy things. The government could also raise the money supply.

(The money supply idea is hard to explain, but think about it like blood in the body. If there's not a lot of money in the economy (blood in the body) then it's going to be hard to get dough to buy things. If there's lots of cash flowing around out there (plenty of blood in the body), then it's going to be easy to get the dough to buy things.)

The BIG ANSWER to why the Great Depression happened was that the economy was heating up big time--people buying and selling lots of things, and borrowing money to do so--without the Government having the ability to regulate the economy. So when everyone looked around and said to him- or herself, "Hey, this buying and selling is getting crazy," they sold everything they could, which drove down prices, and all of a sudden everything was worth much less, and everyone therefore became poor.

BUT, if the Government had been able to (1) raise interest rates, (2) decrease the money supply, (3) close down the stock market (basically saying, "Thou shalt not buy and sell for a while,") there would have been a "softer landing."

I've only given you three reasons so far, but I'll give you one more: people were buying and selling securities on margin. Okay, what in the heck does that mean? It means they were buying shares of companies (stock) and *borrowing the money to do it.* The problem with doing that is that all is well when the price of the stock stays the same or goes up. If the price of the stock falls, then not only can the buyer lose his shirt, but the bank that put up the money in the first place can go bankrupt, too. So the stock market crash of 1929 caused a lot of banks to go under, which contributed to panic, unemployment, people (bankers) becoming, poor, etc.

Feel free to e-mail me if this answer is too difficult.

Answer 4

1. High unemployment
2. Inflation
3. Recession
4. Over supply of goods (under demand)
5. The stock market crash

Answer 5

Over Inflation, Over Investment, Over Production, and Insability in banks. Thats all I have.

Answer 6

1 Debt
2 Trade decline and the U.S. Smoot-Hawley tariff act
3 U.S. Federal Reserve and money supply
4 Business
5 Government deficit spending

Answer 7

one major one was the misunderstanding of economics of people in charge at the time.


keysnian ecomonics (sp?) shoulda woulda preventing things from getting soo bad.

Answer 8

stock market crash, prohibition, extreme inflation

Answer 9

slavery. duhhh

Answer 10

suicide