Question

The 1920s were a boom period economically, but the era ended in the greatest economic bust in american history. who/what do you think was most responsible for this bust? why? how did the new deal address the causes of the bust?

Answer 1

Here are some causes of the economic bust of the late 1920's/early 1930's. A valid argument can be made for all of the following:

1) Buying on credit- This form of payment allowed American citizens to pay a small down payment and then pay off the cost of the good month by month. However, many citizens did not realize that with interest, this would actually cost more in the long run.

2) Investments in the stock market- Many Americans invested their money into the stock market, as it was constantly doing well during the 1920's. However, many of these individuals bought these stocks on margin. This meant they put 10% down and the bank would cover the other 90% of the cost. This turned out to be a horrible mistake, as the stock market crash resulted in banks and citizens losing millions of dollars.

The New Deal helped to fix some of the aforementioned problems. For example, the bank holiday implemented a few days after Franklin D. Roosevelt's inauguration resulted in the federal government investigating and monitoring banks that made bad loans. These banks would then be controlled by the government to ensure they would not give out bad loans again. Along with this, the Federal Deposit Insurance Corporation helped to provide financial security for those individuals keeping their money in banks.