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The Great Crash, also known as the Stock Market Crash of 1929, was a significant factor in the onset of the Great Depression, which was a period of economic hardship that lasted from 1929 to 1939. The crash began on October 24, 1929, and is considered one of the most dramatic days in Wall Street history. On this day, the stock market lost an unprecedented 12% of its value. This was followed by several other days of intense losses, and by the end of the month, the market had lost nearly 25% of its value.
The immediate cause of the crash was a significant overvaluation of the stock market, coupled with a lack of regulations and oversight in the stock market. Many investors had bought stocks on margin, which meant they were borrowing money to buy shares. As the market began to drop, these investors were forced to sell their stocks to pay back their loans, which caused the market to fall even more.
The crash had a ripple effect throughout the economy, as many people lost their savings, and businesses and banks failed. Banks had invested heavily in the stock market and with its fall, they were unable to fulfill the demands for cash withdrawals. The loss of confidence in banks led to bank runs and closures, further worsening the economic situation.
The crash also resulted in an immediate and severe contraction of credit, further exacerbating the economic downturn. Consumer spending and investment dried up, leading to a decline in industrial production and widespread unemployment. The Great Depression that followed was the longest and most severe economic depression of the 20th century and lasted until the late 1930s.