Here's a timeline of key events and conditions that led up to the Great Depression of 1929, starting from the early 1920s:
1919–1920: Post-World War I Economic Boom
- End of World War I: The U.S. emerged as a global economic powerhouse, benefiting from the war. The nation experienced rapid industrial growth, particularly in manufacturing, as Europe was rebuilding.
- Inflation & Recession: In 1919–1920, the economy faced inflation and a brief recession as wartime industries shut down and soldiers returned to the workforce. Unemployment rose, but this was followed by a brief recovery.
1921: Return to Prosperity
- Recovery and Boom Begins: The post-war recession was short-lived. By 1921, the economy had begun to recover, fueled by technological innovations and increased consumer spending, particularly in durable goods like automobiles and radios.
1922–1928: The Roaring Twenties
- Stock Market Boom: The U.S. stock market, especially in New York, began to soar, with stock prices rising dramatically due to speculative investments. Many Americans started investing in the stock market, often on margin (borrowed money), anticipating ever-increasing returns.
- Consumer Culture: New technologies like the automobile, household appliances, and radio led to a consumer-driven economy. Installment buying (buying on credit) became common, which allowed people to purchase goods even if they couldn't afford them outright.
- Weak Agricultural Sector: While urban areas thrived, farmers faced overproduction and falling prices for crops, which hurt their income. This created an imbalance between rural and urban economies.
- Loose Lending Practices: Banks engaged in risky lending practices, giving out loans with little oversight, especially for stock market investments.
1925: Warning Signs in Agriculture and Real Estate
- Agricultural Decline: Agricultural prices began to drop significantly, leading to rural poverty. Farmers were overleveraged and heavily in debt, yet agricultural production continued to outpace demand.
- Florida Land Boom and Bust: A speculative bubble in Florida real estate, driven by rampant buying, collapsed in 1925. This was an early warning sign of overextension in the economy, as the sudden collapse of the market left many investors in debt.
1927: Economic Expansion Continues but with Cracks
- Federal Reserve Lowers Interest Rates: In an attempt to keep the stock market boom alive, the Federal Reserve lowered interest rates, making borrowing even cheaper. This further encouraged speculation in the stock market and increased bank lending, contributing to economic instability.
- Credit Expansion: Household debt and corporate debt continued to rise as consumers and businesses took on more credit to finance their consumption and expansion, respectively.
1928: Stock Market Frenzy & Rising Inequality
- Stock Market Euphoria: By 1928, the stock market was booming at an unprecedented rate, with more and more Americans investing heavily. People were buying stocks on margin, meaning they could purchase stocks with just 10–20% of the actual value, borrowing the rest.
- Income Inequality: Despite economic growth, income inequality was increasing. The wealth gap between the rich and the poor widened, with a concentration of wealth in the hands of a few, while many Americans struggled to maintain basic living standards.
Early 1929: Bubble Reaches its Peak
- Stock Prices Reach Record Highs: By the summer of 1929, stock market speculation had reached a fever pitch, with stock prices skyrocketing beyond the actual value of the companies they represented.
- Industrial Overproduction: Many industries were overproducing goods that consumers could not afford to buy. This created a backlog of unsold inventory, particularly in durable goods like automobiles and appliances.
- Rising Unemployment: Some sectors, like agriculture, continued to struggle, and unemployment was beginning to rise even as the stock market soared. This was a sign of economic imbalance.
August 1929: The Final Warning Signs
- Economic Slowdown: By August 1929, the U.S. economy was showing signs of slowing down. Consumer spending decreased, and production began to contract. Despite these signs, the stock market continued to rise.
- Weak Banking System: Many banks were overextended, having loaned out large amounts of money for stock market investments. The financial system was vulnerable to shocks.
October 1929: The Great Crash
- Black Thursday (October 24, 1929): The stock market experienced a massive sell-off, leading to panic among investors. The market briefly recovered, but the selling pressure continued.
- Black Tuesday (October 29, 1929): The stock market collapsed, with billions of dollars in wealth wiped out. Investors who had bought stocks on margin were ruined, and banks that had lent money to them faced massive losses.
This decade leading up to the Great Depression was marked by economic optimism, stock market speculation, and uneven prosperity. The warning signs—such as the agricultural downturn, income inequality, and over-reliance on credit—were largely ignored, leading to the eventual market crash and economic collapse.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.