The Wall Street Crash and the Great Depression Flashcards
Long Term reasons for the Great Depression/ problems with US economy
- How was falling demand for consumer goods a key reason for GD?
- Construction boom ended 1928 thus slowed down spending and investment
- By 1929: most Americans who could afford a car had one
- Industrial production fell 2 months before WSC
- fall in demand due to over saturated market
- 50% of American families had income of less than $2000 a year (minimum needed to survive)
- overproduction of goods
- US could not sell surplus to other countries
- other European countries owed US money + struggling to repay
- US put high tarrifs on foreign goods - they did the same
- businessmen found dif to sell goods abroad
Long Term reasons for the Great Depression
How was the instability of “get rich quick” schemes reason for GD?
- aim of Americans
- invested in speculative ventures and many lost money
- provided op for tricksters and crooks
- E.g Charles Ponzi conned thousands into investing in his ventures
- promised 50% profit in 90days
- more large-scale speculation was notably during the Florida land boom + stock exchange in latter part of decade
Long Term reasons for the Great Depression/ problems with US economy
How was the Florida land boom an example of speculation or “get-rich-quick” scheme?
- Parcels of land began to be sold to wealthy Northerners
- People began to invest their money in unseen developments (hoping to sell and make profit)
- land boom sustained only if there were more buyers than sellers
- demand tailed off in 1926
- Scandals of land advertised as within easy access of sea that was really many miles inland or in middle of swamps
- nature played its part with hurricanes in 1926 killing 400 and left 50,000 homeless
- With thousands of people bankrupted, Florida land boom collapsed leaving coastline strewn and storm-battered developments
Long Term reasons for the Great Depression/ problems with US economy
- How were problems with agriculture a reason for TGD?
- falling demand led to falling prices: wheat dropping $2.5 to $1 a bushel
- Farmers overproduced
- growth of synthetic fibres lessened market for natural ones e.g cotton
- Prohibition cut demand for grain used in manufacture of alcohol
- Greater use of tractors meant fewer horses necessary - less demand for food
- after war - European farmers able to grow enough to meet own demands
- competition from Canadian, Australian and Argentinian farmers
Long Term reasons for the Great Depression/ problems with US economy
In terms of the problems with agriculture how did this differ between the North and the South?
- by 1928 half all US farmers living in poverty
- Distinct division between town and countryside
- Towns and cities in North experienced economic growth + prosperity
- not case in rural areas esp South and West due to problems with agriculture
- led to lower living standards and poverty
- wages low
Long Term reasons for the Great Depression/ problems with US economy
What were problems with the old industries as a cause of the depression?
- faced long term difficulties
- Coal mining and textile industry were in decline
- demand for coal fell in 1920s as gas and electricity more widely used
- More foreign comp e.g cheap coal from Poland
- Led to closure of a N. of mines and many miners made redundant
- lowering of tariffs on wool and cotton in 1913 meant US textile industry faced stiff competition from abroad
- Man made fibre rayon cheaper to produce than wool, cotton or silk
- Textile mills in North e.g Massachusetts closed down
Reasons for the Wall Street Crash
How did the US banking system work and briefly what was the issue?
- out of date in 1920s
- 12 regulatory reserve banks headed by Federal Reserve Board, appointed by president
- System allowed banks to regulate themselves without gov interference
- but there were problems …
Reasons for the Wall Street Crash
What were the problems with the US banking system?
- Reserve Banks acted in interest of bankers rather than nation as a whole
- Local banks no part of the centralised system:
- 1920s: over 30,000 banks in USA: most small and unable to cope with financial problemos - Federal Reserve Board favoured low interest rates
- encouraged easy credit - cause of crash
- 1927: lowered interest rates from 4 to 3.5% - encouraged “bull market”
Reasons for the Wall Street Crash
What was the bull market?
- During 1920s more and more Americans bought shares on stock exchange + prices kept rising, thus creating a bull market
Reasons for the Wall Street Crash
How was Over-speculation on the stock market a reason for the WSC?
- In 1928, shares did not rise as much as previous years
- fewer people willing to buy shares and there was a drop in confidence in the market
- warning but when share prices began rising again speculation reoccurred
- The complete lack of stock market regulation by the government or any other agency encouraged more and more speculation
- R gov’s stuck to “laissez faire” beleifs
- 1925: stock market value $27 bill –> 1929: $87 bill
- 1929: 20 mill shareholders + prices risin
Reasons for the Wall Street Crash
How did the Availability of easy credit cause the Wall Street Crash?
- credit made it much easier for people to buy goods even though they didn’t have the cash to pay for them on spot
- customers could pay on hire purchase
- this included practice of buying shares on credit “on the margin”
- further encouraged by easy credit policies from FRB
- worked well as long as prices rising - when they fell - problemos
- 75% of purchase price of shares was borrowed
- created artificially high prices
Reasons for the Wall Street Crash
How was loss of confidence a reason for the wall street crash?
- market structure maintained largely by confidence
- 1929: some experts started to sell shares heavily before value fell further
- small investors panicked
- saw fall in price and rushed to sell their shares
- led to a complete collapse of prices and thousands of investors lost millions of dollars
- rumours e.g that FRB about to tighten credit facilities
What were the events leading up to the Wall Street Crash?
- Sep 1929: sharp fall in prices, no panic
- 19 Oct: panic begins ~3.5 mil shares bought and sold - prices fall
- 22 Oct: stock market recovering
- 24 Oct: “Black Thursday” Prices fell so quickly that people rushed to sell their shares. Nearly 13 mill sold.
- 25 Oct: Bankers support stock market. worked
- 26 Oct: hoover assured A that panic over
- 29 Oct: “Black Tuesday”: worst: ~ 16.5 mil shares traded. Shares lost value many shareholders lost everything. Suicides reported.
What do historians see crash as in relation to depression?
- thought depression well on its way already - signs show that
- crash important trigger
What were the effects of the crash?
- collapse of many businesses with individuals losing billions
- Thousands bankrupt + N of suicides
- President Union Cigar plunged to his death from New York hotel when stock company fell from $113.50 to $4 in a single day
- Thus, people unable to consume or invest.
- As workforces laid off even less money in eco for spending
- Crash -> collapse of credit with loans called in and new ones refused
- crash destroyed confidence in US economy
