Did cutting taxes and paying off the national debt cause the Great Depression?

[David S]

I don't know if anyone can positively identify the cause of the great depression, but in my opinion Richius is on the right track. The Fed's easy money policy caused the run up in the stock market. Later they tightened the money supply which perhaps caused the market to crash. That caused a bank run which in turn resulted in bank failures nationwide.
The Smoot Hawley tariff was passed in June of 1930, but the market crashed in September of 1929, so it could not have caused the crash. It may have made things worse though. High top tax rates didn't help either.

Its ironic that the Fed was supposed to prevent things like this, and yet only 16 years after the Fed was born we got the biggest stock market crash in history, the biggest depression in history, and bank failures nationwide. After that we got continuous inflation which has resulted in the dollar losing over 90% of its value. We also got the S and L failures in the 80's which resulted in the taxpayers getting stuck for half a trillion dollars. IMHO the fed has not done well.

[David S]

no one said those things caused, it was HIS REFUSAL TO REGULATE THE STOCK MARKET.

I knew there are people who think regulating the stock market would have stopped the Great Depression, but I didn't know there were people who actually thought not regulating it was the CAUSE.

There was definitely one thing going on in the stock market which created high risk and undoubtedly made the crash much worse. People were able to buy stock on margin, by paying only 10% down and borrowing the rest from the broker.  That makes for a highly leveraged investment. If the stock goes up 10% you make a 100% return. Thats pretty nifty, but it works the other way if the price goes down 10%. In that case you lose 100% of your investment, and if it goes down more than 10% you lose more than you invested. 

Today you can only borrow about 30% of the stocks price. If the stock goes down 30% you will get  a call from your broker demanding more money or sell the stock. Personally I think margin trading is still very risky and I don't recommend it.

[David S]

I don't know if anyone can positively identify the cause of the great depression, but in my opinion Richius is on the right track. The Fed's easy money policy caused the run up in the stock market. Later they tightened the money supply which perhaps caused the market to crash. That caused a bank run which in turn resulted in bank failures nationwide.
The Smoot Hawley tariff was passed in June of 1930, but the market crashed in September of 1929, so it could not have caused the crash. It may have made things worse though. High top tax rates didn't help either.

Uh...they didn't exist yet.

What didn't exist yet?

[David S]

The top tax rate bounced all over the place during that era. I have this on a PDF file so I cant copy it here, but it goes  like this;

Year      rate
1912  0%
1913  7%
1919  73%
1929  24%
1932  63%
1936  79%
1942  88%

The amount of income subject to the top rate also bounced all over the place  during that time. I found the data some time ago at an IRS site, but I don't have the URL now.