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(Dow5000.com)    The Dow Jones Industrial Average (www.californiawinehikes.com)
(Dow5000.com) The Dow Jones Industrial Average (www.californiawinehikes.com)
Not everybody during the 20's knew about the stock market and how it worked. It's quite simple actually. Because you need money to make money, the stock market was created to allow people to invest in, or give money to companies. When you buy their stock, a company gets your money for the stocks. They can use this money to research, build new buildings, or whatever they want to do with it. Then when they make money, the stock goes up. If they lose money, the stock goes down. An important thing to know about stocks is that if there is a high demand to buy stocks, the price will go up in result. ↑ If the there is a high demand to sell, the price will go down. ↓ Another thing to know about stocks is that if people can't afford to pay the full price of a stock they can buy on margin. When you buy on margin you can pay for 10% or more of a stock and borrow the rest of the money from a broker. If the price of the stock goes lower than the amount of money loaned, a margin call will be sent out, telling you, you have to pay the loan (Rosenberg 1). This is basically how the stock market works.

The 1920s were a very confident and optimistic time. Previously, it was known to be incredibly risky and dangerous to invest in the stock market, but all that changed in the 20's. Slowly more and more people invested in the stock market creating a chain: the prices go up --> the people buy --> the prices go up --> the people buy. It grew to a point where the stock market was truly the only way to become rich, and many people did. Many people were desperate to get into the stock market, and in result, banks actually invested their customers' money into the stock market, which became a problem later on (Rosenberg 1).

"On the morning of Thursday, October 24, 1929, stock prices plummeted." "Black Thursday" they called it. "People were selling their stocks in fear losing their money. In result, the prices went even lower. "(However) when a group of bankers pooled their money and invested a large sum back into the stock market, their willingness to invest their own money in the stock market convinced others to stop selling" (Rosenberg 1). Things were back to normal by the end of the day. A couple days later on "Black Monday" the prices dropped again. People were scrambling to sell their stocks. As always, in result of selling large amounts of stock, their prices go down. This time when the prices dropped no one came in to save them. The next day, "Black Tuesday", the worst day in stock market history, made history: selling over 16.4 million shares of stock, a new record. So many stocks were sold, that at the end of the day the ticker was 2 and a half hours behind (Rosenberg 2). Now that the banks lost their money, so do their customers, leading to panic and in some severe cases, suicide. With the stock market crash people were afraid to purchase items, which led to an overstock in inventory. Production slowed down and stores were closing. This caused the unemployment rate to go up 25% (Kelly). All this led to the Great Depression.


Of course the stock market crash led to the Great Depression. But that was not the only reason. Another reason was because of bank failures. This was a problem because around that time, more thank 9,000 banks failed. This meant that people lost their savings. The banks that were still alive, stopped being so generous to people and less willing to create loans for them.

Another problem that led the to Great Depression was the drought conditions. The drought that occurred in the Mississippi Valley in 1930 caused people not to be able to pay their taxes and other debts. Instead, they had to sell their farms for no profit. So as you can see, the problems in life that seemed to be not that bad, were actually tragic and deathly (Kelly).

Also, during the 1920's, most currencies became legally fixed at their value in comparison to the value of gold. Most banks would be willing to trade the legal currency for gold. This was called "The Gold Standard" (Moffatt). In the September of 1931, when people lost confidence in the value of the British Pound, many people traded their Pounds for gold at The Bank of England, thinking the gold would have a greater value. When Britain ran out of gold to trade for Pounds, they were forced to leave The Gold Standard, which caused the currency to collapse in value (Bernanke). Like the Pound, most currencies were forced to leave The Gold Standard in the 1930's. Almost no currencies use it today (Moffatt).

This is relative to the Great Depression because it was found that in general, the earlier a country left The Gold Standard, the earlier the country recovered from the depression. For example, France and Belgium, who waited much longer to leave the gold standard then Great Britain and Scandinavia, recovered much after Great Britain and Scandinavia. Also Countries like China who didn't have a Gold Standard nearly avoided the Depression completely (Bernanke). There is no question that this contributed to the depression. How could this be?

Soon after the collapse of the British Pound, many people turned to the value of the American Dollar. The economic distress made many believe that the Dollar would be the next currency to lose value. People soon began taking their money out of banks, and converting it to gold. Many Banks failed. The Federal Reserve was able to save the Dollar from the speculative attacks by raising interest rates, but ignored the banking problems. More and more banks failed as people lost confidence in them, and withdrew most of their money. This proved to be problematic. The bank failures played a large part in the great depression (Bernanke).The Federal reserve had very little control over monetary policy under The Gold Standard, which led to greater amounts of unemployment. These factors all played a large part in The Great Depression (Moffatt).

The depression was the most tragic time in the 20th century. Over 11,000 of the 25,000 banks in America had failed. The crash of those 11,000 banks put the whole nation under a severe economic crisis. In 1932, the unemployment level had risen to between 12 and 15 million workers. This affected the lives of millions of people. With no jobs, nobody had the money to buy food and pay their bills. This was called the Great Depression. It lasted ten years! "Banks, stores, and factories were closed and left millions of Americans jobless, homeless, and penniless" (The topic: The Great Depression).
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thickets.net

Outside, you would see wandering the streets looking for jobs, a huge line of helpless people waiting outside of soup kitchens to get a small piece of bread or a small serving of soup. During these hard and desperate times, poverty became a way of life for 40 million Americans. Without paychecks, people lost their homes and were forced to build their own shelters on vacant lots. Children roamed the streets in search for coal and wood for their only heat source, fire. The scoured the town for newspapers to act as a blanket. Everyone rummaged through the garbage cans for food. A man in Chicago reported seeing 50 men fighting over a barrel of garbage. (Goldston 12)

Have you ever wondered how hard it was for people who were living during the Great Depression? Have you ever wondered how hard it was day by day during the stock market crash? They had to go through having no place to live, no money, and no food!
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nansemondriverworks.com


During this time, businesses closed their doors, people lost their homes, jobs and savings. Also, many people relied on charity to survive. In 1933, the worst part of the depression, 15 million Americans were unemployed. It led to the election of the president, Franklin Roosevelt. Franklin created programs known as New Deal to overcome the effects of the Great Depression (Great Depression in the United States).
Wikipedia.org
Wikipedia.org



The Great Depression affected the society very greatly. It made everyone build shelters on their own in vacant lots. It was so bad, on a everyday basis people saw others searching the streets for garbage bags filled with scrap. Children would be sent off to the streets to look for coal and wood to make fires and newspapers for blankets. The depression was a hard time for many people.
(Goldston 12)





References:
Websites:
Bernanke, Ben. "Money, Gold, and the Great Depression." The Federal Reserve Board. 2 March 2004. The Federal Reserve. 21 Jan 2009 <http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm>.

"Great Depression in the United States." Microsoft® Encarta® Online Encyclopedia 2008. Microsoft Corporation. 24 Jan 2009 <http://encarta.msn.com/encyclopedia_761584403_2/Great_Depression_in_the_United_States.html>.

Kelly, Martin. "Top 5 Causes of the Great Depression." About.com: American History. About.com. 24 Jan 2009 <http://americanhistory.about.com/od/greatdepression/tp/greatdepression.htm>.

Moffatt, Mike. "What Was The Gold Standard?." About.com: Economics. About.com. 21 Jan 2009 <http://economics.about.com/cs/money/a/gold_standard.htm>.

"Stock Market Crash of 1929." Money-Zine.com. Money-Zine.com. 23 Jan 2009 <http://www.money-zine.com/Investing/Stocks/Stock-Market-Crash-of-1929/>.

Rosenberg, Jennifer. "The Stock Market Crash of 1929." About.com: 20th Century History. 26 Jan 2009 <http://history1900s.about.com/od/1920s/a/stockcrash1929.htm>.

Books:
Goldston, Robert. The Great Depression the United States in the Thirties. New York: The Bobbs-Merrill Company Inc., 1968.

The Twentieth Century. 3. New York: Macmillian Publishing Company, 1922.

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