I try to learn more in depth about topics that interest me. I was reading about the Great Depression, but it is so hard to understand for me what exactly cause it, as I read it, it feels like a mix of fancy words that don’t tell me much (likely due to my lack of knowledge and english not being my 1st language). So, could anyone explain me in simple words what exactly cause the Great Depression?
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The Great Depression began in the late 1920s when there was a big issue with the American economy. At that time, the stock market, which is a place where people buy and sell shares of companies, was very popular. It was a bit like a giant online marketplace for stocks.
“Etsy for Stocks”
People were excited about investing in stocks because they thought they could make a lot of money. They were buying stocks, hoping their value would go up, and then they could sell them for a profit. It was a bit like collecting rare video game items and hoping to sell them for more later.
But, here’s the problem: Some people were buying WAY too many stocks, almost like trying to collect too many video game items.
They were using BORROWED money to buy these stocks, thinking they could pay it back when they made a profit.
It’s like buying a bunch of cool video games with your friend’s allowance and hoping to sell them for more later, but if you couldn’t, you’d owe your friend a lot of money.
Then, in October 1929, something terrible happened.
On October 29, 1929, a day known as “Black Tuesday,” things took a turn for the worse. People started to get worried that the prices of stocks were too high and not realistic.
Why?
Overvaluation: Before the stock market crash in 1929, stock prices had been rising rapidly for a long time. This made some people feel that stocks were becoming overvalued, meaning that the prices of the stocks were higher than what the companies behind them were actually worth. It’s a bit like if the price of a simple toy suddenly became very high because everyone wanted it, even though it wasn’t that special.
Speculation: Many people were buying stocks not because they believed in the long-term potential of the companies but because they hoped to sell them at a higher price to make a quick profit. This kind of buying is called speculation. It’s like buying a popular video game not because you love playing it but because you think you can sell it to someone else for more money later. When too many people speculate, it can drive prices up unrealistically high.
Debt: Some investors were buying stocks with borrowed money, using loans to purchase more stocks than they could afford. Again, imagine borrowing money from a friend to buy more video games with the hope that you could sell them for a profit. If the prices of those games suddenly drop, you’ll have a big problem repaying the loan. Similarly, when stock prices fell in 1929, those who had borrowed to buy stocks found themselves in serious financial trouble.
Lack of Regulation: Back then, there weren’t as many regulations and safeguards in place as there are today to prevent stock market manipulation and to ensure that stock prices reflect the true value of companies. This made it easier for stock prices to be influenced by speculation and excessive buying. (Yes, influencers were alive even back then 🙂 lol
So, because of those things, the people started to realize that the stocks they had bought weren’t as valuable as they thought.
And then many investors decided to sell their stocks all at once. Imagine if everyone who had those valuable games decided to sell them on the same day because they were afraid the games weren’t worth as much as they thought.
Even more people panicked and started selling their stocks all at once, which caused the prices to crash, a lot like when everyone rushes to sell their video games, and the prices drop fast.
When the stock market crashed, it had a domino effect. Many banks had invested in stocks, and they lost a lot of money, which made them unable to lend money to people and businesses. Those business and companies couldn’t afford to keep all their employees, so they had to lay off many workers, and this led to high unemployment.
People lost their savings, and because they didn’t have money to spend, businesses struggled, and more people lost their jobs. Families had a hard time making ends meet, and it became challenging for them to buy the things they needed, like food and clothes.
** Side note – flour sack dresses were a real thing. During the Great Depression, money was so scarce that women began to sew clothing and make dresses using the large, sturdy sacks the flour came in. As a result, flour -and feed – sellers began to package their flour in sacks with pretty designs. Research “Feed Sack Dresses – Great Depression“ to learn more :)**
So, in a nutshell, the Great Depression began with a big problem in the stock market, where people were buying too many stocks with borrowed money, and when the market crashed, it caused a chain reaction of economic problems.
Depending on your age, you may have Great-grandparents who have experience with, or memories of, canning and preserving foods; they may remember their parents or grandparents saving tin-foil for re-use; they are likely familiar with storing foods in a cellar or cold-room. Again, depending on your age, your grandparents likely save or re-use things a lot because they saw this growing up.
Hope this helps 🙂
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