The Depression 1929-1939 help?

Question

The market value of stocks inflated, and as prices of stocks rose, people got nervous and started massive wave sell stocks. I don't get how this played a role in the Depression. Isn't this good because if stocks rise, then you sell it, you'll make profit.

Answer 1

there is always a cycle, either in business or economic condition. at one point, people get excited to invest in stock market after hearing news after news that people make millions out of it without knowing that they are already too late to participate. this are normally inexperience investors.

when experience investors found it get overheated, they start selling their shares gradually, leaving all the late comers to enjoy the leftovers. as time goes by, the market will later discover the stock was overvalued that most likely it offers less upside potential. this is where the major sell down occurs. the novice get panic that their stock drop so much but can bear the losses, so they decided to keep holding.

months after months, the price remain the same or even decrease. the novice investors have less money, so they control their expenditure. since major consumer have less demand, business start to get affected.

Answer 2

To understand how the crash in 1929 affected peoples lives in 1929-1939 you have to take a look at what happened in the prior decade.

You're correct that if stocks rise, and if people sell, they'll make a profit. However, between 1919 and 1929 the market was doing so well that everyone was putting their money into the stock market.

When the crash occurred in 1929, the population as a whole took a tremendous hit. People lost a substantial portion of their savings. Furthermore, when people tried to take their money out of the bank in 1929, the banks didn't have enough cash on hand to handle the overwhelming demand for cash.

So, entering the 1929-1939 period, you had people with very little in savings and a distrust in banks.

It is true that the stock market increased in value between 1929-1939, but the population in general was not a part of that. Because the majority of the population had lost their savings in the prior decade, what happened in the Depression era was a widening gap between the haves and the have nots.

Hope that helps and good luck!

Answer 3

No, you require a balanced market to make money. Small differences between the number of people selling and buying create conditions where stock prices will go up or down.

In this case, everyone wanted to sell, and no-one wanted to buy, driving the price per share down at such a rate that the market essentially collapsed.

Shares have no intrinsic value; they are only valued at the price someone is willing to pay for them. If investors stop buying a stock, the stock becomes worthless.

Answer 4

Except that if EVERYONE sells, businesses go out of business, because stocks really are pieces of a business and provide funding to that business.

Also, the biggest piece that you're missing is that a lot of the stock was purchased on credit the 1920s. When the market started to fall, a lot of those people were forced to sell for LESS than they had bought, and thus owed a lot of money with no way to pay it off (remember, businesses were closing left and right, causing a tremendous amount of unemployment).

Answer 5

People were buying at 10% margin -- meaning they were going $9 into debt for every dollar they invested. This is great when the market goes up -- but causes bankruptcy when the market goes down.

In addition, a lot of banks were speculating. There was no FDIC back then -- so if the bank went out of business, everyone lost their deposits.

Add to that a sever multi-year drought in the west and miswest -- and you have trouble with a capital T. It help that Hoover knew nothing about running a country.