How did the ripple effect of the 1929 stock market crash eventually affect all segments of American society?

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thetall eNotes educator| Certified Educator

The “Roaring Twenties” were a period of wealth and excesses when American industries and companies were thriving. There was a surge in rural to urban migration with many people leaving their farms to settle in cities for better employment opportunities with better pay in the burgeoning industries. Consequently agriculture was neglected, leaving the country vulnerable.

Banks were on a lending spree while people increased their expenditures and made investments in company stocks that looked promising. Investors speculated on the exponential growth of stock value leading to even more investments by the people. Banks also moved in to invest in stocks which were at the time rising sharply. Companies took the opportunity to overvalue their stocks.

Eventually this bubble burst because of the increased borrowing and the stock market could not sustain itself and crashed. Companies collapsed, people were unable to get back their investments and hence could not repay their loans. The banks also lost huge sums of money in the crash.

Consumer purchase power dropped, causing the collapse of more companies. The financial system was in turmoil with banks closing down and people losing their deposits. People lost their jobs, houses and assets, putting additional pressure on America’s social systems.

pohnpei397 eNotes educator| Certified Educator

The stock market crash had a ripple effect that eventually had some degree of impact on essentially every segment of the country.  This was true because it helped to destroy the buying power of many consumers and the lending ability of many banks.

When the stock market crashed, many banks were wiped out.  They had loaned out large amounts of money to people who had used the money to buy stock or to companies whose stock was booming.  When the market crashed, the people playing the market could not pay the money back and neither could the companies.  This led to banks having to close.

When the banks closed, many people lost their savings.  Many people also had money in the stock market and lost that.  This meant that many people were unable to buy as much as they once could.  When they stopped being able to buy, it hurt the people who would have been making things for them to buy.  It hurt industry and even farmers (who were already doing poorly in the ‘20s).

Thus, the ripple effects hit consumers, manufacturing firms, retail firms, and farmers.  That is practically everyone in the country.