Stock Market Crash of 1929 Causes, Effects and Timeline

Posted on by Tom DeGrace

1928 Stock Market Crash Stock Chart DJIA
The Stock Market Crash of 1929 still remains to be a big event in the history of stock trading even after 80 years of its occurrence. The great depression of 1929 rocked the life of investors all around the world.

Timeline

The day was September 4th 1929 when the stock market saw a massive high. This high encouraged banks into investing heavily into stocks. Even lots of individual investors got into investing with the hope of fully exploiting this high. But the high was not there to stay. And on October 29th 1929 the stock market saw a huge drop in the Dow. That day the Dow had dropped notoriously by 11.5%. That would be a 39.6% if measured from the high point of September 4th that same year.

Now the stock market started uplifting very slow and steadily. In the summer of 1930s the market had recovered by 30% when measured from its lowest point during the crash. But then again in July 1932 the market dropped to a point just like that of 1929. And gradually the Dow was recorded to be more than 50% below the largest drop that had occurred on 29th October 3 years back.

Causes of the Crash

There were many causes that resulted in the great depression of 1929. The first and foremost reason is overvalued stocks. Analysts tell that the stocks were priced much and the P/E ratios were quite high. The P/E ratio of the traded stocks in 1929 averaged around 60. Another reason that has been deduced is that of margin buying. Investors had to pay just 10% of the total value of the stocks at the time of buying and the rest they could pay in installments. The stock market could not stay stabilized when such a huge amount of money was borrowed from it. Analysts found out that in 1929, almost 5% of the total value of the stock market was due to margin buying.

The federal policies are also to be blamed as said by the analysts. The prevailing president of the Federal Reserve Board, Mr. Adolph Miller introduced very strict monetary policies. The rates of interest on the broker loans were unnaturally increased making it all the more difficult for the investors. Bad banking structure can also be blamed for the great depression of 1929. There was huge number of new banks that were cropping up every single day. The restrictions that were imposed by the federation weren’t good enough. They didn’t have any regulation to determine the minimum capital required to start up a bank or any rules regarding the amount of reserves that was allowed to be lent. Obviously most of these banks were insolvent and were closing at an equally faster rate as they were opening up. When the market crashed in 1929, the situations became worse. These banks which had invested in stocks heavily couldn’t were perished due to the market crash.

Reforms After the Crash

The stock market crash of 1929 resulted in a loss of around $14 billion of wealth. Now after the crash certain reform acts had to be set up to again stabilize the market. One of the steps that was taken was the setting up of the Securities and Exchange Commission or the SEC. The role of this institution was to lay down the market rules and punish in case of any violation of the laws. An Act called the Glass-Stegall Act was passed. This act told that the commercial and the investment banks could no longer have any association between them. But as the time passed the federal rules and the Glass- Stegall rule have liberalized to a great extent. The other reform that was introduced was the establishment of the Federal deposit Insurance Corporation or the FDIC. This was meant to see that each and every individual bank account was insured up to $100000.

Effects and Aftermath

After the crash of 1929 there was a gradual but slow improvement in the market as mentioned before. But that was just temporary. No one could guess that the year 1932 would bring such a huge crash again. The crash of 1932 was so huge that the crash of 1929 seemed really petty in front of it. There was 50% depreciation even from the lowest point of 1929. The drop was so massive that it just dissolved every bit of profit that the stock market ever had. Analysts said that for the stock market to gain that peak which it had in September 1929, it would take almost 30 years.

16 Responses to Stock Market Crash of 1929 Causes, Effects and Timeline

  1. Stock Tips says:

    I read your post . it was amazing.Your thought process is wonderful.
    The way you tell about things is awesome. They are inspiring and helpful.Thanks for sharing your information and stories.

  2. larry karpinski says:

    after reading about the great depression,i think president Obama has done a fantastic job of trying to bring back our country after what Bush and Cheney did to it and the republicans in congress did not care anything about middle class Americans president Obama has done a great job

    • williampenn says:

      Yeah, I just love having a third-generation communist at the helm of capitalism. He was raised by communists, mentored by communists, and is surrounded by communists. He’s doing everything in his power to collapse this economy and CPUSA cheerleaders like you and the rest of the red-diaper babies just couldn’t be happier.

    • Darry says:

      I’m certain you are out of your mind. Obama is destroying our country and not doing a great job. Please reconsider your approach to realize that anyone who works hard and makes good money has to give over half of it away to others who sit around.. It is money well worth. We are becoming a communist economy..

      • Lexi says:

        I mean, Obama hadn’t done a bad job at all. My family has become much more wealthy since his election of office. Don’t speak for the whole nation when you talk of his ‘terrible’ job.

        • jayson A. Milligan says:

          i’m sorry sugar but your are politically incorrect about our president Barrack Hussein Obama. If you have researched what he is trying to do to this country. You would change your mind about Obama. Yes Obama is smart but he is also has been trying to take gun right away from the american people, trying to get in between a war against Russia and Ukraine which could put us in a war ,he is also trying to become a dictator and declare martial law and he also has put us more in debt then america has ever been in and Obama care listen this a think about it, If someone gets obamacare did you know that they surgically implant a micro chip in their skin which biblically is the sign of the beast so if i was you i would change your mind about obama

      • donald says:

        shut the fk up

    • Ngc4179 says:

      The problem with Obama is sooner or later he’s going to start running out of other peoples money. The problem with thinking those who will not work are owed a living is you have to take that money from those who do work. Then you get two classes of people, liberals who want what you have and conservatives who want to keep what they work for.

  3. Mika says:

    Wow that really cleared things up for me! Thanks. I have an exam tomorrow and the teacher didn’t go over this stuff.

  4. Michael says:

    So This Did Help Lmfao ; D

  5. lydia jean says:

    thanks whoever you r!!!!!!!

  6. ty wallace says:

    this is shit did not help

  7. Sydney Fifer says:

    What does science have to do with all this???

  8. tanya walker says:

    i l-O-V-E it. so heyyyyooooo

  9. Lulu says:

    You did a great job. This really helped with my history paper. Thanks!! :D

  10. jayson A. Milligan says:

    fuck the us president Obama he is a idiotic trader . He was born in Kenya not in Huawei is a sand nigger who needs to be impeached cause if not he is going to declare martial law and become a dictator And if u mother fuckers even knew that there is only one false flag left and if he is able to succeed we are are screwed so if i were yall i wou;d pray to god that he gets impeached

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