3.6 The Wall Street Crash and the Great Depression Flashcards
What were 4 systematic problems in the economy before the crash?
- Falling demand for consumer goods
- Instability of ‘get rich quick’ schemes
- Problems with Agriculture
- Problems with old industries
Why was there falling demand by 1929?
- Many products were things you only buy once (eg. a car)
- Almost half of American families had an income of less than $2000 a year
- Tariffs made it difficult to sell goods abroad
What was the Florida Land Boom?
- ‘Get rich quick scheme’
- Scandals where land had been advertised as near the sea that was miles away from it
- Hurricanes in 1926 left many homeless
What problems were there in agriculture by 1929?
- Prices rose as much as 25% from WW1
- Demand fell after the war
- Prohibition cut demand for grain
What problems were there with old industries by 1929?
- Demand for coal dropped as gas and electricity were more widely used
- Rayon, a new material, was far cheaper to produce than wool, cotton, or slid
Why was the banking system a reason for the crash?
- Out of date by the 1920s
- 12 regulatory reserve banks were headed by the Federal Reserve Board - allowing the banks to regulate themselves
- Reserve Banks acted in the interests of bankers rather than the nation as a whole
- Not centralised
How many banks were there in the US in the 1920s?
30,000 and many were small and unable to cope with financial problems
Why did banks do that encouraged the bull market?
Lowered interest rates from 4% to 3.5%
What is a bull market?
A market where people buy a share in stock and its value would rise in the short term so it could be sold for profit
Why was over speculation on the stock market a cause of the crash?
- Shares did not rise as much in 1928 as they had previously
- Fewer people were willing to buy shares and there was a drop in confidence
- Speculation recurred when share prices began rising again
How many shareholders were there in the US by summer 1929?
20 million
Why was availability of easy credit a cause of the crash?
- Buying on the margin and hire purchase were common
- This worked as long as prices were rising
- When prices fell, there were problems
Why was loss of confidence a cause of the crash?
- Market structure maintained by confidence
- Some experts started to sell their shares in autumn 1929
- Some investors panicked as they saw the fall in prices and rushed to sell their own shares
- This led to a collapse of prices
What may have caused the loss of confidence in the stock market?
- Rumours that the Federal Reserve Bank was about to tighten credit facilities by making it more difficult to borrow
- Rumours of men who had made fortunes on the stock market were selling their stock
What events were there leading to the Wall Street Crash?
- Shareholders panic and sell 3.5m shares
- Stock market seems to recover
- Black Thursday - prices fell and 13m shares were sold
- Bankers met to support the stock market
- Hoover assured Americans the panic was over
- Black Tuesday - 16.5m shares were traded
