Why Did The Stock Market Crash
On October 24, 1929, known as Black Thursday marked the worst stock market crash in U.S. history as unsettled investors sold off their investments as the skyrocketing stock prices plummeted into a free fall. Yet, what influenced the initial price of a stock to increase and how did the market crash suddenly? At a fundamental level, the supply and demand in the market determine the stock price. If more stock investors are buying stocks than selling, the price of the stock increases. While, if more investors are selling than buying, the price of the stock declines. Hence, if a significant amount of investors sells than buy in the market, there would be a chain reaction of sellers as the value of the stock would drop significantly, which urges others to sell the stock before the price falls at incredible rates.
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The market was in a bubble in 1929 and 2008 as Price Per Share was higher than the Earnings Per Share and the stock markets crashed.
Furthermore, Robert Shiller suggests that the current markets show signs of a bubble as stock values are higher than the value of earnings by using the CAPE ratio or “the price-to-earnings ratio based on average inflation-adjusted earnings from the previous 10 years” (Forbes). Shiller claims that the CAPE Ratio is too high as the current ratio is 25 compared to the average of 17, which resembles a bubble as earnings and profit margins are too high. Furthermore, pops in bubbles are inevitable as the NYSE stocks are volatile as they have no fundamental value. The U.S. runs on a capitalist economy and the ultimate destiny as an individual is to earn a profit. The idea of persuading investors to continue to buy a “stable” stock is utterly impossible as individualism has influenced investors to only focus on themselves. In turn, Capitalism has speculated investors into gambling in the short-term as the vicious cycle of bubbles and crashes continues
on.
As the U.S. Stock Market crashed the overproduction of the economy was a major factor that led to the Great Depression.The Roaring 20s left the economy into overproduction as it deflated the sales of many commodities and, as a result, the market had a surplus of goods. Thus, companies that did not sell their products resulted in the value of their stock to decline. As the value of the stocks decreased, investors who had bought stocks at the market value in the hopes of selling it at a profit found themselves owing more for the stock than it was worth. That in turn led to panic selling and that led to the crash. At the verge of the stock prices crashing, banks lost money as depositors quickly withdrew their money in the fear of losing their savings. They were known as bank runs, where banks were inundated with depositors that wanted their money back. The high fluctuation of withdrawals depleted out all of the money from the bank, in response the bank could not return the money back as they gave out 90% of their money into loans and only kept 10%. Before the Great Depression, banks gave the benefit of the doubt that the economy would crash. However, they were wrong, 50% of banks in America collapsed. The flow of money halted as they were unable to give out loan or investments to fuel the economy. Many Americans lost everything and were left in destitution as the Great Depression raged on for a century. Furthermore, the bank failure can be avoided with the aid of the federal government. First and foremost, banks should not be giving out loans excessively. Banks must limit their loans because the citizens may not be able to pay back. Additionally, the government insure up to $250,000 dollars to depositors to encourage citizens to trust the banks. The government will continue to print money if banks have insufficient amounts of money. With this in mind, the government will help alleviate the possibility of another Great Depression by ensuring money for its citizens to spend more money into fueling the economy.
The market was in a bubble in 1929 and 2008 as Price Per Share was higher than the Earnings Per Share and the stock markets crashed.
Furthermore, Robert Shiller suggests that the current markets show signs of a bubble as stock values are higher than the value of earnings by using the CAPE ratio or “the price-to-earnings ratio based on average inflation-adjusted earnings from the previous 10 years” (Forbes). Shiller claims that the CAPE Ratio is too high as the current ratio is 25 compared to the average of 17, which resembles a bubble as earnings and profit margins are too high. Furthermore, pops in bubbles are inevitable as the NYSE stocks are volatile as they have no fundamental value. The U.S. runs on a capitalist economy and the ultimate destiny as an individual is to earn a profit. The idea of persuading investors to continue to buy a “stable” stock is utterly impossible as individualism has influenced investors to only focus on themselves. In turn, Capitalism has speculated investors into gambling in the short-term as the vicious cycle of bubbles and crashes continues
on.
As the U.S. Stock Market crashed the overproduction of the economy was a major factor that led to the Great Depression.The Roaring 20s left the economy into overproduction as it deflated the sales of many commodities and, as a result, the market had a surplus of goods. Thus, companies that did not sell their products resulted in the value of their stock to decline. As the value of the stocks decreased, investors who had bought stocks at the market value in the hopes of selling it at a profit found themselves owing more for the stock than it was worth. That in turn led to panic selling and that led to the crash. At the verge of the stock prices crashing, banks lost money as depositors quickly withdrew their money in the fear of losing their savings. They were known as bank runs, where banks were inundated with depositors that wanted their money back. The high fluctuation of withdrawals depleted out all of the money from the bank, in response the bank could not return the money back as they gave out 90% of their money into loans and only kept 10%. Before the Great Depression, banks gave the benefit of the doubt that the economy would crash. However, they were wrong, 50% of banks in America collapsed. The flow of money halted as they were unable to give out loan or investments to fuel the economy. Many Americans lost everything and were left in destitution as the Great Depression raged on for a century. Furthermore, the bank failure can be avoided with the aid of the federal government. First and foremost, banks should not be giving out loans excessively. Banks must limit their loans because the citizens may not be able to pay back. Additionally, the government insure up to $250,000 dollars to depositors to encourage citizens to trust the banks. The government will continue to print money if banks have insufficient amounts of money. With this in mind, the government will help alleviate the possibility of another Great Depression by ensuring money for its citizens to spend more money into fueling the economy.