How the Prosperity of the Roaring 20's Led to the Great Depression of the 30's

655 Words Aug 20th, 2012 3 Pages
How the Prosperity of the 1920’s Led to the Great Depression of the 1930’s

The Great Depression was caused by not just one thing, but by many things put together, not only in America, but all over the world. Americans were happy between the end of World War I and the onslaught of the Great Depression. Everything seemed as if it was expanding and getting better. Overoptimism in the economy led to many people investing their new wealth in the stock market, because they assumed the economy would keep growing, or at the very least stay the same. No one expected it to go “belly up”. People believed everything would right itself and work out, all because of technology. In the 1920’s a lot of artificial wealth was created. People
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All those banks continued to give them credit. American people, and the American government, continued to spend more money than they actually had. The Federal Reserve tried to end the speculation on the stock market. They applied stricter money policy than they had expected. The strict policies led to more and more bank closures. People started to withdraw their money from banks, because they were unsure of what would happen to it. The banks then, decided to hold reserves in a higher amount than the law actually required. The Federal Reserve’s policies eventually led to deflation, and the collapse of investments. It was found that the Federal Reserve could not fix what they had done with investment purchases. The decrease in money supply caused deflation, and therefore raised interest rates to extraordinary levels, discouraging investment purchases by ninety percent. Businesses were not selling as much as they were producing, leading to people being laid off, and reduction of the labor force. Reducing employment led to reduced income, and reduced income led to less spending. Because of less spending, there was less production, and companies could not afford to hire people. It was a vicious circle. The great speculation of the stock market was caused by the “easy money “ policy of the

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