1929 Crash of Stock Market Facts

The 1929 crash of stock market was the worst economic disaster of the 20th century and goes down as a learning experience for all investors and governments alike.

Before the crash the US was in a time period called the roaring 20s. It was a time of great wealth and prosperity. Everyone who had bought stocks quickly became rich.

If a stock went down just 10% the investor would be out of money. If it went down more they would end up owing their broker money. By the height of the 20s 8.5 billion dollars were loaned out, more money then was even printed in the US.

What Caused the Great Depression?

So, what caused this financial paradise to come crashing down? Well there were a number of factors. For one the Real Estate market came crashing down in 1925, striking the economy pretty hard.

But even without the real estate crash the market was severely overpriced. The PE ratio of the market was 32.6. Just in case you are wondering what is the pe ratio it is a ratio to measure how fairly priced the stock is. A PE ratio over 20 is usually considered to be high.

The price of the stocks simply had gone up too fast for business to be able to match. As a result it was inevitable that the market was going to come crashing down at some point.

When it did, investors were greatly overleveraged. The fear of losing their life savings in an instant brought the average person to panic sale the market.

Effects of the 1929 Crash of the Stock Market

The stock market had a major effect on the economy of the US and the world in general. With the exception of Japan the entire world fell into a depression shortly after the crash had started.

But probably the biggest effect it had on the world was the learning experience it gave investors and politicians.

In the 30s the US government wanted to let the free market work itself out. This lead to unbelievable bank failures and more panic. It was not until the US started spending money and creating jobs in WWII that things started to get better. In the financial crisis of 2008 the government learned from their mistakes of the past and immediately started bailing out the economy and spending money to get the country back on track.

It is possible that another crash like the 1929 crash of stock market will come and throw the world into another great depression, but as long as the world works to prevent it and help their economies out in times of crisis it is less likely to occur and recovery will probably be faster if it does.

To give you an idea of how catastrophic it was here is a 1929 stock market crash

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