1.2 Causes of the Wall Street Crash

Question 1

1.2 The Wall Street Crash

Answer 1

Black Thursday 1929
12.8 million shares changes hands on Stock Exchange
value of stocks had fallen by $4 billion
Tuesday
, 16 million shares changes hands at very low prices
Nov 1929, $30 billion had wiped of shares value

number of employees rose from 500,000 to 4 million as the share value of companies began to gall and banks that possessed shares began to close down
= companies went bankrupt
= triggere cycle of increased unemployment

many thought the drop in share prices would be temporary

average real wages fell 16%
GNP fell 29%
steel industry operating at 12% capacity in 1932

Shattered public confidence
share values nationally had fallen from $87 b to $56 billion and in 1933 were worth $18 b

Question 2

1.2 Overproduction

Answer 2

people who benefited most in 1920s was top 5% of population - low tax policies = rich became richer
+ owned 33% of nations wealth
(bottom 40% of population owned only 12.5%
= lacked spending power to buy all the goods produced
disparity in wealth between very rich and bottom third = boom unsustainable

*demand for new goods required spending power across US population

belief that boom was never ending = encouraged coorporations to build more factories to provide goods for an ever expanding market

Fordney McCumber limited trade with rest of world = and other countries placed tariffs on US goods

*potential markets were still lost due to war (eg: Germany and war reparations and communist state in Russia)

1920-29 US manufacturing capacity rose 50% but exports rose only 38%

consumption within the US was artificially inflated by the existence of easy credit via hire purchase = Americans would only pay a small proportion upfront

Wall Street crash = spending dropped rapidly = revealed weakness of US economy

Question 3

1.2 Land Speculation

Answer 3

*prelude to crash was land speculation in Florida

boom = idea of owning property in Florida as very attractive
(business man Du Post saw possibility of buying up land and selling it to those that face cold winter months in north east)

Motor industry made accessible
= thousand new houses were built in Miami (pop 30,000-130,000)

1926= collapse
lack of infrastructure, railways and roads impeded development
Swindlers - speculators who sold land in non existent town of Nettie gave boom a very bad name = loss of confidence
1925 Internal Revenue service began taxing profits on property speculation= reduced speculation and confidence
Hurricane devastated large parts of Florida - killed 400 people and left 50,000 homeless = unattractive to potential customers

Question 4

1.2 Bull Market

Answer 4

over speculation on future share prices
* belief that the bull market would never end
Share value doubled in 1925-29 to $64 billion
= share speculation for average Americans could get rich quick by buying shares at the margin
- would borrow money and bus shares at 10% of share price - pay loan back through selling shares at a higher prices

bad when when share price began to fall
“a mad orgy of speculation” - Hoover

1929-30 share speculators lost money, going bankrupt
= selling of shares began which triggered a share sale panic

Question 5

1.2 Weakness of Banking System

Answer 5

• healthy economy individuals and companiess deposit savings a bank, to lend money for a profit to commercial and private customer (only keep 8%)
  BUT if borrowers fail to repay their loans banks face problems of how to pay depositors and may be force to close because they owe more money than they posses and depositors loose money

1920
- Federal Reserve Board kept interest rates low, 3.5%
= help fuel considerable amount of borrowing by banks with reserve of money
BUT much of money banks invested went into share speculation and property investments instead of loans to commerce and industry = did not contribute to economy

• Call Loans: loans got individuals and companies buy shares at the margin (profitable as long as share price rose)
• share price fell = exposed thousnsa of banks to bad debt

Minimised if all banks had followed regulations
- only 1/3
- other 2/3 operated in an unregulated market without clear controls on how they should operate = high risk lending to businesses

• thousands of different banks (US law set limits on banks, within one of 48 states = had limited stocks of money )
• when faced with bad debt they called in Laois = sparked bank closures when debtors were unable to pay

1921-26
5000 banks went out of business
= made depression inevitable as they provided money for industry through loans

Question 6

1.2 USA affected of economic depression

Answer 6

the sharp rise in unemployment from 1.5 million to 3.25 million by March 1930.
1933 it was 13 million (24.9% of the workforce).

GNP fell from $103 billion in 1929 to $55 billion in 1933.
Average weekly earnings fell from $25 to $17.

banks operating fell from 25,500 in 1929 to 14,700 in 1933

Thousands of men left home in search of work. Using railroads these hobos became a feature of American life in the depression

Farms were repossessed by banks.

Soup kitchens were found in every major town and city.

of suicide rose 14%,
the number of marriages fell by 10%, and with it the birth rate.

children who suffered a poor diet, clothing and education. Small-scale farmers, African Americans and Hispanic-Americans