What caused the great depression to start with? The Great Depression was one on the worst financial disastors to ever occur. But what actually made it occur?
The basic reasons for the crash were fear and greed. In the 20s the market was making new highs and most investors thought it would keep going forever.
Lenders started lending people money to buy stocks with just a 10% down payment. This caused enough greed in the air that most investors did not notice or care that stocks were overpriced. Overinflated stock prices was the reason stocks had to come down to begin with. That is one of the most common great depression facts.
As the prices of stocks flew through the roof they left businesses behind. The things that these investments were actually backed by were unable to live up to the unrealistic goals of the investors and their greed.
When the first investors realized this there was a lot of selling going on which lead to even more selling and panic. Suddenly all of those investors who had bought with a 10% down payment had seen their gains disappear with just a few point movements.
The fear of losing so much money and being overleveraged lead to a lot of selling which in turn lead to lower prices and more fear.
Could this happen again? Well that is an interesting question because investors are known for repeating the same basic mistakes over and over again. In fact every bulls and bears market has been very similar to the roaring 20s and the great depression.
The difference is that the governments do tend to realize the signs today and try to help out the economy before it gets to that level again. Even so, you never know exactly what will happen. There are always risks when it comes to investing. If you invest into the market you have to be aware that you may not experience the same growth as someone who invested into it 20 years ago. Times are always changing, and the best thing we can do is to make educated guesses and invest in what seems to work.
If you have more questions about the great depression or other events in the stock market ask them in this stock market questions webpage.
Tags: could the great depression happen again, What Started The Great Depression