Causes and consequences of the Crack of 29

Image: Slideshare

Before the economic crisis of 2008, there had been many famous economic downturns, but of all of them the most famous was the Crisis of 29, also known as Great Depression. This crisis wreaked havoc in many countries, but where it did the most damage was in the country where it originated, the United States. To understand this crisis in depth, today in this lesson from a PROFESSOR we are going to talk about the Causes and consequences of the Crack of 29.

The Crack of 29 was the biggest drop in the US stock market throughout history, it had influence not only locally, affecting many countries. Its influence was such that it caused one of the most serious economic crises in history, the so-called Crisis of 29 or Great Depression.

The Crack of 29 can be divided in three phases: Black Thursday, Black Monday and Black Tuesday. This is due to the fact that the Crack was not a matter of a single day, but lasted for several days, with the continued decline in the stock market causing the crisis. On Thursday there was a small drop but it was the drops on Monday and Tuesday that caused a real disaster in the economy.

The crisis most affected the United States, especially to New York, but little by little it was passing to other countries. Some of the most affected were Europeans, who were still recovering from the damage suffered during the First World War.

Image: Slideshare

Once we understand what the Crack of 29 was, we must talk about the causes and consequences of the Crack of 29. Like any great historical event, it was the result of a great series of causes and had key consequences for the states of the moment.

It should be taken into account that many of the causes of Crack 29 are interpretations of economists, since we must bear in mind that economics is a very complex science, and that it can have very variable opinions.

Some of the causes are as follows:

• Overproduction and underconsumptionIn other words, production was increasing, but as the economy of the middle and lower classes did not improve, they could not afford to continue consuming so much. All this caused that there were not enough buyers for so many products.
• The crisis in Europe. After World War I, European countries were experiencing serious economic problems, their currencies were devalued, and the United States lost many of its biggest buyers. Even so, Europe was very dependent on the United States, and that is why it was dragged into the crisis after the Crack.
• The speculation It was one of the main causes, stocks were bought at a low price to sell them as soon as they rose in price. This caused an artificial rise in the stock market, causing a mismatch between the stock market and the real economy.
• The bank credits they were very easy to get, and were generally used to buy shares in the stock market, this caused an abuse of credit and the emergence of large debts.

Image: Google Sites

All crises cause serious consequences, which affect many sectors, although the greatest victim is always society. Some of the most important consequences of the Crack of 29 are the following:

• Beginning of the economic crisis of the 29th Great Depression.
• Closure of numerous companies due to the stock market crash.
• Price drop of products due to lower purchasing power of consumers.
• After the stock market crash, people took their money out of the bank, many of whom could not give as much money, because much of that money was in investments, causing the ruin of customers and banks.
• Many countries enter the protectionism, reducing trade agreements. Each country seeks to emerge from the crisis on its own, instead of relying on several states.
• Rise in the unemployment rate due to business crises.
• A serious agricultural crisis, which led to many crops not being harvested.
• Increase in members of the labor unions.
• Drop in the birth rate in the United States.
• Political changes that would have serious consequences in later years. Rise of the extreme right, and arrival of fascist leaders such as Hitler.

Image: Slideshare