The Great Depression Flashcards
Why did shares value increase so much in 1929
- Many people were buying and selling
- Americans had great confidence in their economy
- A bull pool encouraged inexperienced investors to speculate, artificially increasing prices
What is a bull pool
A group of traders that set out to artificially increase the price of a share by buying and selling it to each other repeatedly over a short period of time to sell that share to less experienced traders at a profit
What was speculation
Buying shares on the expectation that the price would rise in the short term
What was the first sign that the market might crash in 1929
Stock market leaders began to sell their shares in mid 1929
Why did stock market leaders sell in mid 1929
They realised that the stock market was not aligned with the realities of the US economy
Why did the Wall Street crash happen
The confidence in the economy was replaced by panic, as people began to copy the famous investors in selling. By late October, everyone was desperately trying to sell, so prices dropped off a cliff.
When did people begin to buy shares again during the crash
By mid November, the prices were incredibly low, so some buyers were attracted back into the market
When did share prices reach their peak
September 1929
When was Black Thursday and what was it
24th October 1929 - 13 million shares were traded as prices fell rapidly. A team of leading bankers bought lots of shares in around 20 companies to calm people
When was black Tuesday and what happened
29th October 1929 - the economy recovered briefly, but on this day 16 million shares were traded, the highest number yet
When did share prices begin to fall
Early October 1929
When did share prices hit their lowest in 1929
13th November
What was a share of Radio Corp. worth on:
1. 3rd March 1928
2. 3rd September 1929
3. 13th November 1929
- $0.94
- $5.05
- $0.28
How much had shares lost value by November 1929
$26 billion
What is liquidity
The amount that an organisation holds in cash or that can easily be converted to cash
Which type of investor lost out the most
Those who bought on the margin - the brokers had no money themselves so demanded the payments back immediately, which either meant that people had to take out savings or they had to sell their possessions
Why did banks struggle during the Wall Street Crash
The people needed to take out cash from their savings, but the banks had invested lots of money into the stock market and loaned it to others.
What happened to a person’s money if their bank closed down
It was lost, with no compensation
What happened as wages fell
There was a reduction of consumer spending so newer industries struggled
Why was credit not available from banks
Banks needed cash to give the people their savings, so could not afford to loan cash
How did the approach of businesses change after the crash
They invested less, cut down production and began to offload workers
What effect did the lower production rates and the increase in unemployment have on the economy
It began to struggle
What is underconsumption and how did it contribute to the depression
Americans reduced consumer spending, because they did not have enough purchasing power (the amount of goods people can afford with their income). Once the market was saturated (no more potential customers), workers who produced the goods lost their jobs, further weakening their purchasing power
How did over-production in industry affect the depression
Industries such as cars and construction were still producing goods to sell, but there were fewer people to buy, so prices fell.
Why did the income of farmers further fall during the depression
There were severe droughts across the Great Plains of USA and there were frequent dust storms, so the area was unusable for agriculture
Why did the banks fail during the depression
- Most banks had limited reserves of money
- Only 1/3 of banks were part of the Federal Reserve System, so the government could not support many.
What percent of US banks failed by 1933
20%
What is a ‘run’ in context of banking
When customers rush to take their money out of a bank because they have lost confidence in it
How did WW1 influence the depression
USA had loaned money to Europe but they could not pay it back so kept taking loans from USA to pay back the previous ones, so it relied on a continuous flow of money from USA, which eventually failed. The collapses of European economies led to less purchasing of American goods, which further harmed the American economy.
How did European countries cut themselves off from America in the early 1930s (1)
- High tariffs were placed on American goods
- Germany tried to become self-sufficient (needing no outside help)
- Britain set up a trading agreement within its own empire
How much did international trade decrease from 1929-1932
$24 billion
What rose during the Great Depression (4)
- Unemployment
- Homelessness
- Bank failures
- Business closures
What fell during the Great Depression (4)
- Industrial production
- Prices
- International trade
- Investment
How many banks closed in the USA from 1930-33
9,000
How many Americans lost their savings as banks failed
9 million
What were the incomes of farms in 1929 and 1932
1929 - $6b
1932 - $2b
Why did 1/3 of American farmers lose their land
They could not pay their mortgages and other debts
How many people were affected by the dust bowl
17 million
What is the negative cycle of economic depression
- Demand for goods drops
- Company profits fall
- Workers laid off
- Less money to buy goods
- Demand for goods drop
What was unemployment levels in 1933
25%
What were the effects of unemployment
- Living conditions worsened
- Not enough food
- No gas/water/electricity
How much did the suicide rate increase from 1929 to 1931
14%
How did the depression effect blacks
They were the first to lose their jobs and they faced racist threats
How did the depression affect immigrant workers
They lost their jobs to white people and many left USA or were deported
How did the depression affect women
They lost their jobs, but towards the end of the depression some women were able to get jobs due to low family income
How did the depression affect the elderly
They couldn’t afford to retire - only 11 states had pension schemes
What were Hoovervilles
Shanty towns constructed on the outskirts of cities by residents who lost their homes. They had no running water, electricity or heating, as well as no permanent shelter. Named after president hoover because they blamed him for the problems
Who were the bonus marchers and what did they want
WW1 veterans - they were to receive a bonus of up to $625 for their service but they were due it in 1945. They needed it during the depression though so they demanded it by marching to Washington DC in 1932.
What happened to the bonus marchers
Hoover said no - but they were given $100,000 to help them get home. Most accepted but 5k did not. The army tear-gassed them away.
What was the result of the bonus marchers on the reputation of Hoover
It was destroyed - he refused to give them their bonuses and then he sent the police and army to teargas them, injuring 100 and killing 1
What was the public opinion of Hoover during the depression
They hated him
Was it fair to say that hoover did nothing to help the depression
No
What is laissez-faire
The belief that the government should not interfere in a country’s economy
What limited Hoover’s ability to fight the depression
He only encouraged groups to act, he didn’t force them, due to his political beliefs of laissez-faire
How did Hoover help the people during the depression
- He doubled the spending on public works, to build projects like the grand coulee dam
- He introduced the Reconstruction Finance Corporation in 1932 to loan $300m to states to provide relief
How did hoover help the banking system
- He set up the NCC, which raised $500m for failing banks
- He established the RFC (refinancing corporation) which provided $2b to rescue banks
However, these measures came too late as many banks had already failed
