The Cause and Effects of the Great Depression Essay Example for Free

The Cause and make of the spacious Depression EssayMany sight speculate that the stock grocery store crash of 1929 was the principal(prenominal) cause of The Great Depression. In fact, The Great Depression was caused by a series of factors, and the effects of the effect were felt for many a(prenominal) years after the stock market crash of 1929. By looking at the stock market crash of 1929, bank failures, reduction of purchasing, American sparing policy with Europe, and drought conditions, it becomes seeming(a) that The Great Depression was caused by more than just the stock market crash. The effects were detrimental beyond the financial crisis experienced during this time time period.The first and most obvious known factor in the stunnedgrowth of The Great Depression is the stock market crash of 1929. The Money Alert website states that, When the stock market crashed in 1929, it didnt happen on a single day. Instead, the stock market continued to plummet oer the course of a few days setting in motion one of the most devastating periods in the history of the United States (The Money Alert). Many investors would buy stocks on a margin where they would corrupt the stocks with borrowed money. This was a great option for buyers when the stock market was on the rise.However, when the stocks plummeted, the financial institutions that had loaned the money for the stock acquire went to collect the capital that had been loaned turn out and were inefficient to do so. This, in effect, caused banks to resort money as a result of macrocosm unable to collect on the debt, and the investors were unable to collect their losses. In addition to close investors, banks and vexationes were investing in margin loans as well. So, these poor investment strategies led the banking industry to lose the volume of their assets, including money from bank guests that had no knowledge that their money was being used for this purpose.Since no government regulations were in place to protect investors and banks in this circumstance, this ultimately led to the effect of the stock market crash, which paved the panache for America to go into The Great Depression. The banking industrys reaction to the stock market crash, would be the following(a) major cause of the Great Depression. The banking industry as a whole after the stock market crashed was going bankrupt due to not being able to carry the bad debt that was created from using customer money to buy stock.Because the banks were out of money, they were unable to backrest customer withdrawals from their bank, causing many bank customers to lose all of their savings. With the uncertainty of the future of the banking industry, many great deal withdrew all of their savings, which caused more than 9,000 banks to close their doors and go out of business (Kelly). Due to the effects of the Great Depression, and the collapse of the banking industry, the government created regulations to prevent sim ilar failure in the future.For Example, the SEC, (or Securities Exchange Commission), which regulates the sell and trade of stocks, bonds and other investments was created as a result of The Great Depression. The FDIC (or Federal puzzle Insurance Corporation), was created to insure bank accounts so that that the consumer would be protected if the bank were to go out of business (Kelly). The Great Depressions effect on the banking industry led to many useful changes to the banking industry and helped restore assumption in banks in the American people.The next major factor that contributed to the Great Depression was the reduction of goods being purchased during the time period. After the stock market crashed, consumers from all frugal classes in America were uncertain of the perceptual constancy of the economy, and stopped purchasing consumer goods. The effect of not purchasing goods caused many companies to begin to produce a surplus, or an excess of goods, which caused companie s to reduce their unneeded workforce (Kelly). Since so many people were out of work, they too were unable to purchase goods, and soon a domino effect was created and many companies went out of business.During this time period, many people purchased goods on payment plans, similar to the modern credit system we use today, and their inability to pay caused many companies to repossess the purchased goods. This caused companies to have additional inventory of products that contributed to the lack of need to manufacture additional products (Kelly). By this time, more than 25% of the workforce was now out of work, and due to the overproduction of goods and overstock of inventory, there werent full consumers to purchase these goods (Kelly).Another major contributing factor to The Great Depression was Americas economic policy with Europe. During the midst of the depression, the government decided to create the Smoot-Hawley Tariff to help protect American companies by taxationing import go ods from Europe. The government initially created the Smoot-Hawley Tariff to protect America by making contradictory agricultural goods more expensive than domestic products so that foreign goods would cost more than local enceinte goods(Kelly). Due to many revisions during the initial stages of the tax, many other American businesses were included in its protection.The effect of the tariff on trade with Europe caused unstable relations with European countries. Also, many of the European nations began to boycott goods exchange by American companies in an act of retaliation for the tariff (Kelly). Having this tariff in effect during the Great Depression caused a prolonged recovery in the American economy due to the decline in Europe purchasing consumer goods from America, in addition to the decline of domestic goods purchases. The final major contributing factor in the great depression was the massive drought that took place during the 1930s.Though the drought wasnt a direct caus e to the depression, it did, however, add to the turmoil that was taking place during this time period. The drought of the 1930s had a very drastic effect on many reigns of the United States which caused both economic and ecologic problems to the realm. The economic problems caused by the Great Depression were mostly concentrated in the Mississippi valley, where farmers were unable to pay the tax on the land and most were left no choice but to sell their farms for no profit. This caused a decline in agriculture goods available in America, due to the lack of farming during this time period (Kelly).The ecological effects of the drought, combined with the effects of over-farming the land, caused the Dust Bowl. The Dust Bowl was caused by over-farming the land and not correctly rotating the crops. By not rotating the crops correctly, the top soil became damaged. Because of the damages to the top soil, the land became infertile, and many people were forced to abandon their land or sell off their property. The timing of the drought, along with the effects that it had on the economy, forced the Great Depression further into turmoil and made recovery even more out of reach for the ground (Bonnifield).The stock market crash did, however, act as the match that lit the tin that was The Great Depression. Along with the stock market, the cause of the depression was also contributed to the banking industrys inability to cover losses sustained during the stock market crash. Also, the reduction of manufacturing and purchasing goods caused a toxic cycle of workers not being able to work, in turn not being able to consume goods, which further sank the country into financial hardship.With the tariffs in effect with Europe, the consumption of Americas goods by foreign nations greatly decreased, which caused the country to fall further behind in recovery of the economic turn-down. In addition to these circumstances, the timing of the drought that occurred in this time period ca used many of the farmers supporting our agriculture to fold, and created one of the largest man-made natural disasters in history. Careful of these factors shows that it took more than a crisis in the stock market to cause America to go into the superior economic slump ever experienced in the history of our country.