The economic Depression in America

Question 1

Why did a new investments culture emerge in the 1920’s?

Answer 1

• WW1 = govt bonds = borrowed $ from public who received invests payments-> heavily advertised e.g: Charlie Chaplin
• increase in disposable income in 1920’s
• new ways = $ increase + safe reliable + respectable
• new tech= ticker tape
• boosted by customer culture=idea of owning a share of a company whose goods you owned

Question 2

What was speculation?

Answer 2

Speculation= taking out loans from banks to cover costs of buying shares b/c think it is safe as prices are going up

Question 3

Why was speculation risky?

Answer 3

• will be dangerous if stock crashes randomly and not able to pay back loan
  -‘buy on margin’ = only needed 10% deposit to borrow money to purchase shares
  EXAMPLES
  -500+ banks failed each year
  -little security on loans -> lending to someone who can’t afford to pay
• unrestricted by govt.

Question 4

Impacts of Over production

Answer 4

• famers = bankrupt + forced to borrow money from bank to survive
• wheat prices= halved in price
• 600,000 farmers lost farm in 1924
• standard of life in rural communities dropped -> 3mill famers move to urban areas h/w-> high comp for jobs-> lower wages/ low job availability
  Other industries collapsed
• coal production = too much coal -> workers replaced/ fired
• Cotton factory= workers replaced by machines bc made new synthetic fibers created(Rayon)
• Ship industry collapsed bc new tech introduced-> forced replace workers

Question 5

What caused rural overproduction?

Answer 5

During WW1- farmers increased their production to meet high demand h/w when the war had ended there was less demand -> overproduction+ unable to sell
-farmers unable to sell abroad due to imposed tariffs (Fordney McCucumber)

Question 6

What caused luxury goods overproduction?

Answer 6

Urban areas in the 1920’s=boom slowing down
- mass prod of luxury items-> surplus h/w companies not able to sell b/c tariffs -> overproduction
-poor people not realize boom was slowing down and still had this mindset of “ right to prosperity” and were more risky with their money at the time
EXAMPLES
-Cars, radios and fridges were all bought on credit

Question 7

Economic conditions in rural America in the 1920’s

Answer 7

12 million = living below poverty line yet they still decided to buy latest tech b/c of credit
- lowered confidence + banks recalled loans
- wealthy elite = didn’t reinvest additional money b/c fear boom slowing down
- high unemployment
- low wages
- high comp for work
-people started saving and not spending
- richest 1% owned 1/3 American assets= focused on own profits

Question 8

What caused the panic during the early 1930’s?

Answer 8

• decrease in confidence + recalling debts-> disastrous for avg American h/w major banks didn’t recall loans due to misguided confidence
  -by end of 1929 = 6mil migrated to cities -> decrease in wages
• less spare money to spend= decrease in economy
  EXAMPLES
  -June 1929 car industry decreased first time in 4 years b/c maj have a car -> less profits and beggining of selling stocks-> lower market

Question 9

How did the Car Industry fail?

Answer 9

-June 1929- car industry decreased for first time in 4 years b/c
- maj have a car-> less profits
-beginning of selling stocks by clever speculators -> decrease in the market

Question 10

Wall Street Crash

Answer 10

1929 Oct 21st- 29th

-21st OCT= more selling than buying b/c low confidence/ ticker falls 1.5 hrs. behind= ppl unable to act quick enough-> many ruined

• 24th OCT= black Thursday/ banks buying mass stock by using peoples money to invest in hope to keep markets stable= risky+ no regulation to stop this
  -28th OCT=stock prices drop significantly
  -29th OCT= ppl now selling shares for a fraction of what they bought previously-> $14 billion lost in a single day
• TRIGGERS THE WHOLE WORLD INTO A GREAT DEPRESSION