The Great Depression

The Great Depression


THE INSIDE STORY
Could the good times last forever? During the decade known as the Roaring Twenties, times were good for many Americans. The economy was booming, unemployment was low, and the stock market was climbing steadily. It was an exciting time for American popular culture as well. Movies and radio exploded in popularity and artists and writers throughout thecountry documented the great economic and social changes taking place. It seemed the good times would never end.
     The growing stock market was one thing that seemed likely to last forever. In fact, many Americans in 1929 believed that the price of stocks would always rise. Who could blame them? In the two years before 1929, the stock market had doubled in value. Investing in stocks seemed likean easy way to wealth.
     In the summer of 1929, businessman John J. Raskob wrote a magazine article about investing in the stock market. The article’s title sums up what he and many other people felt about buying stocks in the 1920s: “Everybody Ought to Be Rich.” In the article, Raskob said that investing in the stock market was a simple matter, and that the average American could—and should—doso. But just two months after “Everybody Ought to Be Rich” was published, many stock investors were not even close to being rich. They were flat broke.





The U.S. Economy in the 1920s
At the end of World War I, the United States was the world’s leading economic power. That position grew stronger during the boom times of the 1920s, but by the end of the decade the U.S. economy wascrashing.


Economic Growth During World War I, American farms and factories supplied much of the world with the food and supplies needed to fight the war. Although the American economy slowed down briefly when the war ended, it was booming again by 1921. Growth was steady throughout most of the 1920s.

The success of American industry was reflected in the stock market. During the 1920s the overallvalue of the stocks traded at the nation’s stock markets rose an astounding 400 percent. Many Americans rushed to buy stocks, afraid they would miss out on the prosperity. Some borrowed money from stockbrokers in order to buy stocks, in what is known as buying on margin. This increasing investment in the stock market drove stock prices even higher. 


Hidden Problems The stock market wasbooming, but there were hidden problems affecting the American economy. For example, the new wealth being created was not distributed evenly. The richest 1 percent of the population earned 19 percent of the nation’s income.
     Also, for much of the 1920s, the easy availability of credit allowed Americans to increase their spending on consumer goods. Credit is an arrangement in which a purchaserborrows money from a bank or other lender and agrees to pay it back over time. By the end of the decade, many consumers were reaching the limit of their credit and could no longer afford to buy the products that had kept the U.S. economy expanding. 


The Stock Market Crash By the fall of 1929, consumer spending had slowed, and sales of some products had suffered badly. Fears began to grow thatstock prices might soon drop. Then, at the end of October, some nervous investors began to sell off their stocks. Others joined in, and a huge sell-off began.
     The worst day was October 29, known as Black Tuesday. On that single day, investors sold off 16 million shares. With few people wanting to buy the stocks that flooded the market, stock prices collapsed completely. Many investors who hadborrowed money to buy stocks were forced to sell at a loss to repay their loans.
     The massive stock market crash ruined many investors, but they were not the only ones affected. Banks that had lent money to these investors were in deep financial trouble as well. Furthermore, the crash delivered a devastating blow to American industry, which had already been struggling. Indeed, the effects of...