Great Depression (Stock Market)
The Great Depression was the most severe economic and financial catastrophe of the twentieth century, during which the US stock market fell approximately 89% from its 1929 peak to its 1932 trough, unemployment reached 25%, and the global economy contracted for nearly a decade.
The stock market crash of October 1929 marked the beginning of the Great Depression but was not its sole cause. The decline in equity values destroyed household wealth and consumer confidence, but the Depression's severity and duration reflected a cascade of policy failures that transformed a serious recession into a decade-long catastrophe.
From the October 1929 peak to the July 1932 trough, the Dow Jones Industrial Average fell from 381 to 41 — a decline of 89%. Many individual stocks were wiped out entirely. Thousands of corporations that had issued stock during the 1920s boom went bankrupt. The market did not fully recover to its 1929 peak until 1954 — a quarter century later.
The banking system's collapse deepened the Depression severely. Over 9,000 banks failed between 1930 and 1933 as loan losses mounted and depositor runs swept through communities across the country. Unlike the 2008 crisis, there was no federal deposit insurance — when a bank failed, depositors lost their savings entirely. The destruction of the money supply as banks failed and lending contracted contributed powerfully to the economic collapse.
The Federal Reserve's response has been widely criticized by economists, most notably Milton Friedman and Anna Schwartz in their landmark 1963 work 'A Monetary History of the United States.' Rather than expanding the money supply to offset the deflationary spiral, the Fed allowed the money supply to contract by roughly one-third between 1929 and 1933, turning what might have been a sharp recession into a prolonged depression. Additionally, the Smoot-Hawley Tariff Act of 1930 triggered retaliatory tariffs from trading partners, collapsing international trade.
The Depression fundamentally reshaped American financial regulation. The Glass-Steagall Act of 1933 separated commercial banking from investment banking. The Securities Act of 1933 and the Securities Exchange Act of 1934 established the framework for federal securities regulation and created the Securities and Exchange Commission. Federal deposit insurance through the FDIC was established to prevent future bank runs. These reforms shaped US financial markets for generations.