Everytime in my history class when we talk about the depression I have always wondered where the money went during that time and my teacher has never been able to answer me. Time after time I try and ask someone and they always say it was because the stock market crashed. But then I ask how does that tie in with money in the bank? But then finally I asked someone and they were able to explain it to me. And so now I am here to pass on that information to you.
During the depression many people found that there were two ways to make easy money. One of these ways was to lend money from the bank and the other was to put money in the stock market. However many people then decided that they wanted to pull out of the stock market, so they sold there stocks. This then caused the prices on all of the stocks to drop to almost nothing. So this is where we have a problem, how did all of the banks crash too?
And this is the answer that I got. Let’s keep it simple and say that I have a dollar, we will call this dollar A. I then put that dollar in the bank. Then the bank lends dollar A to a person that is trying to buy a car. But then the bank also lends the same dollar to a person trying to buy a house. On both of these “lends” the bank then charges say $.10. So now dollar A has turned into $3.20. Now try in put this into perspective with a lot more money and a lot more interest.
So now you ask, how does that tie in with the stock market? And here is the answer to that. This one is more simple all it is is that the banks had to lend money to people so that they didn’t lose there money. So then when everybody started to withdraw money a dollar was then being treated as $100 dollars. Then when the banks had no more money in them they had to shut down, and after shutting down many people lost all of the money the had in them.
So now I really don’t see why this was so had for my history teacher with a college diploma to explain. Do you I mean come on all she would have had to do was draw a little chart on the board that looked like this.
Stock market money - money gets withdrawn - bank tries to pay peoples losses - banks crash - people lose all money
Now that’s not too hard is it?
