Factors that lead to the Great Depression.
Speculations in the 1920s caused many people to by stocks with loaned money and they used these stocks as collateral for buying more stocks. Broker's loans went from under $5 million in mid 1928 to $850 million in September of 1929. The stock market boom was very unsteady, because it was based on borrowed money and false optimism. When investors lost confidence, the stock market collapsed, taking them along with it.
Short signed government economic policies were one of the factors that led to the Great Depression. Politicians believed that business was the key business in America. Thus, the government took no action against unwise investing. Congress passed high tariffs that protected American industries but hurt farmers and international trade.
The economy was not stable. National wealth was not spread evenly. Instead, most money was in the hands of a few families who saved or invested rather than spent their money on American goods. Thus, supply was greater than demand. Some people profited, but others did not. Prices went up and Australains could not afford anything. Farmers and workers did not profit. Unevenness of prosperity made recovery difficult.
Stock Market crash of 1929.
The 1920's saw a stock market boom in the U.S. as the result of general optimism: businessmen and economists believed that the newly-born Federal Reserve would stabilize the economy, and that the pace of technological progress guaranteed rapidly rising living standards and expanding markets. The U.S. Federal Reserve's attempts in 1928 and 1929 to raise interest rates to discourage stock speculation brought on an initial recession.
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firms cut back their own plans for further purchase of producer durable goods; firms making producer durables cut back production; out-of-work consumers and those who feared they might soon be out of work cut back purchases of consumer durables, and firms making consumer durables faced falling demand as well.
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