THE GREAT MARKET CRASH OF 1929

The Great Market Crash of 1929



The Great Market Crash of 1929

Introduction

The Stock Market Crash of 1929 is also known as the Great Crash or the Wall Street Crash. This was the most destructive stock market crash which took place in the history of American Stock Exchange, keeping in view the duration and extent of its fallout. Signaling the onset of the 12 year long Great Depression, this stock market crashed indicated the effects which Great Depression will have on all the industrialized countries of West. This did not end till the start of American enlistment for the Second World War. According to (Richard M. Salsman, 2004):

“Anyone who bought stocks in mid-1929 and held onto them saw most of his or her adult life pass by before getting back to even.”

This paper aims to examine the causes which led to the Stock Market Crash of 1929. Although no unified consensus exists on the actual cause of this great crash; however, we will analyze several arguments to identify a preferred set of conclusion.

Discussion

It has been argued that the primary cause, which led to the great crash, was the measures taken by media and some other important people to stop speculation of the stock market. Another argument states that the expansions made in investment trusts, amount of margin buying and public utility holding prices was the primary cause of the crash, because all of this led to a hike in the prices of public utility stocks; consequently fueling their purchase. By using high amounts of preferred stocks and debt, utility holding companies, public utilities and investments trusts were made highly levered in the market. All of these factors contributed in triggering the onset of the events leading to great crash0. Because of the imbalance in the utility regulations, this sector was vulnerable to bad news, so it arrived in October 1929, and the entire utility stocks fell down to an unbelievable extent. After this decreases in the prices of utility stocks, the margin buyers had to sell, creating chaos in the stock market for selling all the stocks.

The Conventional View of the Great Crash

The great crash caused an extension in the great depression, which consequently led in prolonging the duration of low stock prices, making people realized that the prices were too high previously. Since speculators were always blamed for the boom in the market, upon knowing about the crash John Maynard Keynes wrote in the New York Evening Post that speculations have resulted in an unexpected hike, in the interest rates. Similarly, when the stock prices lowered repeatedly, he wrote another post in the Economist stating that the deflation in the American stock prices will be good for the world.

Strong Economic Indicators of Great Crash

The claim that strong economic indicators which already predicted the great crash, is a debatable topic, as according to evidences, only a subtle clue identifying the weaknesses in the real economy was available. A great deal of underlying proofs are available which shows ...