by Jerry Curtis

Created on: July 26, 2007

What were the causes of the Great Depression? Economists, who rarely agree on much, also do not totally agree as to what actually caused the ten-year ruin of America's and ultimately the rest of the world's economy. Depending on their political orientation, some say it was a combination of greedy, unregulated corporations and unscrupulous brokers and bankers.

Others blame the government's initial do-nothing stance when banks started failing and then later doing too much by over-taxing imports, which made the problem worse. Everyone, however, agrees that the economic boom of the 1920's was really too much investment chasing not enough production, combined with too much debt. Superimposed on this contracting economy was a stock market that seemed to be out of touch with reality.

However, without going too deeply into the confusing and obtuse world of economics, we can gain a basic understanding of the Great Depression by looking at five causes:

1. The Stock Market crashed on October 29, 1929. In about two months after the crash, stockholders had lost more than $40 billion. (That would be about $456 billion in 2006.) The market gained some of its value back by 1930, but it was not enough to keep America sliding further into the Great Depression.

Wall Street on October 29, 1929, was heading for what we would term today "a major correction." Financial corporations and bankers had floated gimmicky investment schemes and trusts, and investors, who bought stocks with money they hadn't earned yet, were hopelessly infatuated with the prospects of high investment returns. At the same time, the American economy was contracting, producing too much, selling too little, and not competing in the world market.

2. The banks failed. The stock market crash initially took about 750 banks with it. During the ten years of the depression another 9,000 banks closed their doors. This was before U.S. government insurance (the FDIC), so if you had money in a savings account figuring to use it for your old age and your bank failed, you lost everything. Those banks that survived quit loaning money and perpetuated the vicious cycle of economic depression. Rural banks were particularly hard hit as crops either failed or prices were too low for the farmers to repay annual loans.

3. People stopped buying things. With the stock market crash, the public became fearful that other bad things were going to happen. When people stop buying, the demand for items dropped and people who produce the goods

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