At this time, the wealthy made a large amount of money, while the poor made hardly any. The poor began to spend more than they earned on goods and quickly went into debt.
Bank Panics/ Debt from war
People began to worry about the debt the US could be in from war and about whether the banks would lose their money. People began going to the banks to collect cash, but the physical money supply was lower than the demand.
Stock Market Crash
Stock prices initially rose, so people began to invest money. However, once the prices began to decline, people went to liquidate the funds but banks did not have enough physical money and no commoners invested in any more stock markets.
Raised Interest Rates
The Federal Reserve Board raised interest rates in an effort to reduce/ control the amount of loans. However, investors continued to take loans and buy stocks while commoners could not.
Farmers and other companies had too many products, but could not sell them. The goods that went bad (such as dairy) even furthered the company into debt.
When the economy was beginning to repair, a large drought hit and made it even harder to start/continue production. Farmers had trouble producing any goods at all.