1920's Economic System

The failure of the economic system in the United States in the decade leading up to 1929 is a primary reason for the Wall Street Crash of 1929. Some of the economic system failures include a weakened banking system, an increase in the amount of credit granted to the public, and stock companies allowing the short purchasing of stock (Pettinger, 2012). During the 1920s there were over 30,000 small to medium sized banks with a limited amount of deposits. When the public made a run on the banks demanding the return of their deposits, the banks, which had a limited amount of deposits remaining, went bankrupt, and many of their customers soon followed. The strong economic outlook of the early 1920s encouraged a growth in offering bank credit and loans (Pettinger, …show more content…
Many believed that the stock market would continue to rise and was a worthwhile risk and borrowed money to purchase stock, believing the stock value would continue to rise which would be enough to repay the debt while also realizing a profit. Unfortunately, speculating that the stocks would continue to rise opened up another option of being able to purchase stocks and only giving the stockbroker 10% - 20% of the stock value (Pettinger, 2012). Assuming the stock would continue to increase in value, when the stock was sold, the proceeds would be used to pay the remaining 80% - 90% due to the stock company and the balance would be the buyers, either to repay a loan or put in his pocket. Too many people were able to borrow money and purchase stocks short and when the value of the stocks started to rapidly decline, there were not enough buyers of a lower valued stock and the market crashed, October 29, 1929, eventually losing 37% of its value by the end of the month (Tindall &