How did WW1 cause the great depression?

1 Answer
Dec 18, 2015

For the U.S. it didn't. For Europe it did.


The U.S. great depression was caused, in large part, to a combination of three things 1. overpriced stocks, 2. investors buying on margin, 3. lack of federal regulation in the Banks.

The 1920 saw a huge surge in the speculation of stocks. There is a balance between a company's debt, a company's net worth, and its outstanding stocks. In the 1920s companies issued stocks that quickly became worthless when people in 1929 tried to sell them. Worse, those stocks were bought on what is called "margin," that is, a buying would put down 10% of the face value for a share of stock with a promise to pay the other 90%. Banks held much of this debt. When stocks started tanking banks put out a "call" for payment on stock bought on margin. When the debtor could not pay and defaulted word got out that banks were running out of money and there was a run on the banks where deposits did their best to withdraw any money they had placed in a bank and banks quickly began to fail when they could not meet that demand.