What are the major causes of the Depression?

Answer 1

The great Depression of 1929 came about because credit collapsed. People assumed property values would always go up. People assumed the value of stocks would always go up. People could buy property and stocks on the margin. They could put down 10% and buy a piece of property or stock. Thus, people could purchase a piece of property that sold for $10,000 by putting up $1,000. Likewise, people could purchase a stock that sold for $10,000 by putting up $1,000. People were throwing money at property in Florida, sight unseen. Swamp land sold for outrageous prices. In 1926 a powerful hurricane came. It ended the rise in property values. No one could sell overvalued property. People walked away from their down payments. The banks or mortgage companies were stuck with bad loans. Some banks started failing and could not make loans or pay depositors.

A number of brilliant men such as Kennedy (the father of JFK) and Rockerfeller, realized the same thing would happen in the stock market. Before long, it would become so overvalued that people would stop throwing money at it. They could make money by selling stocks they did not have (short selling) and when the market crashed, they could buy it back for less. In 1929, they started short selling. When they started selling a lot of stock, no one wanted to buy it at the old high price. The market crashed. The banks that had lent the money for 90 percent of the value of the stock were stuck. A number went under. Credit collapsed. Kennedy and Rockerfeller were still able to buy back the stock they had sold for a much lower price as the stocks fell to a value close to their true worth.

Still, this nation runs on credit. Rather than support borrowers so business could function, bankers lent money to speculators. It was basically the same thing lending companies money to bet on horse races rather than lending companies money to run race tracks.

The same thing happened in these past few years with adjustable rate mortgages. People sighed forms. They had no idea what they were signing. They paid no money down. The mortgage rate was less than rent. When after a few years, the payment doubled, they walked away. The bank was stuck with the mortgage. The stockholders lost their shirts trusting the officers of the bank. The officers of the bank made off like bandits with their billions of bonuses. (Some people think the billions the bankers made in bonuses should have actually gone to the stockholders because bonuses based on smoke and mirrors accounting are not really earned. That however is not a part of your question.)

The collapse of credit was the first part.

The constant raising of taxes and Trickle Down Economics contributed.

Herbert Hoover raised taxes but gave the rich a break thinking that Trickle Down Economics would provide more jobs for the poor. It did not work. The poorer segment of the economy spends every cent they have as soon as they make it. The rich do not necessarily establish factories creating jobs.

The same thing happened with George Bush. His Trickle Down Economic Theory has been a miserable failure. One only has to read the magazines read by rich people. They are full of articles about foreign places where Americans should invest their money. Thus, by lowering taxes on the rich, Bush sent money out of the country and created jobs in other countries. This reduces the money available for goods and services and leads to inflation.

Another cause is America's lousy school system. It has been dumbed down for so long that it needs a major overhaul. A number of years ago, a high school graduate knew as much as a college graduate of today. Americans are losing some of their creativity.

The Federal Concept of creating Jobs is another cause. Creating jobs does no good. A number of jobs simply slow down work. Someone calculated that required federal forms for public schools require nearly 900 hours to fill out. That is nearly 900 hours. That means that someone working 40 hours a week must spend over 6 months a year filling out federal forms instead of useful work. Factories have the same problem. One jelly company had an inspector from the Health Department, Agriculture Department, and FDA come on successive days. Each took all day to inspect. Each required the assistance of a full time employee. Each inspected for exactly the same thing. Each filled out an identical report. Two of those inspections were unnecessary.

The federal jobs that do not cause depression are the jobs that create something that last after the job is finished. The transcontinental railroad is still used. The interstate highway system is still used.