T1: Wall Street Crash and the Great Depression

What is speculation?

Buying shares in the hope that their value will rise so they can be sold as profit

What is buying on the margin?

Borrowing money to buy shares, with the intention of selling them when they rose in value to pay back the loan and make a profit

Describe the Economy in the 1920s

Many started investing in the stock market - even if they didn't have enough money, lots of 'buying on the margin', 1920: 4 mill shareholders to 1929: 20 mill/120 mill shareholders

Why did so many Americans want to invest?

To achieve the 'American Dream' through investing in the stock market, investing + buying shares thought to display wealth + success

When was the 1st day of the WSC and what happened?

Wed 23rd Oct: 3 million shares sold in the last hour of trading, margin buyers told to find more cash

When was the 2nd day of the WSC and what happened?

'Black' Thurs 24th Oct: 13 mill shares sold, no buyers sold

When was the 3rd day of the WSC and what happened?

Fri 25th Oct: Top bankers decide to support market, banking firms buy millions of shares for more than they are worth

When was the 4th day of the WSC and what happened?

Sat 26th Oct: President Hoover - "The fundamental business of the country, is on a sound and secure basis"

When was the 5th day of the WSC and what happened?

Mon 28th Oct - Mass selling: 3 million shares sold in the last hour of trading, 9 million shares sold in total, Banks stop supporting prices

When was the 6th day of the WSC and what happened?

Tue 29th Oct: 16 million shares sold, No buyers found, Ticker tape machines break due to pressure, many ruined before they can act

List the long term causes of the WSC

Poor distribution of income between rich and poor, speculation, overproduction by American industries, no export markets for US goods, agriculture

How was poor distribution of income between rich and poor a long term cause of the WSC?

Richest 5% of pop. earned 33% of all money earned in USA meaning: relatively small no. of Americans could afford goods being manufactured, many bought goods through Hire Purchase, Late 1920s: weren't enough people willing to buy the vol. of goods being produced

How was speculation a long term cause of the WSC?

Form of gambling - hoping that prices rise for short term profits, few people were in fear so started selling --> others saw this and a mass panic to sell stocks --> people lost confidence --> crash and people unable to sell stocks

What is hire purchase?

Buy now pay later

How was overproduction a long term cause of the WSC?

Late 1920s: more goods being mad than there were people who could afford to by them --> companies decreased prices, made smaller profits, started to sack workers

How was no export market to US goods a long term cause of the WSC?

Reply to US' tariffs against goods from abroad: tariffs imposed on US --> hard for US businesses to sell goods abroad, USA couldn't export surpluses when demand at home fell

How was agriculture a long term cause of the WSC?

Farmers in Europe no longer needed food from US (able to cultivate own land again), overproduction --> prices fell, reduction in profits --> some unable to make mortgages payments --> farmers being repossessed. 1924: ~600,000 farmers lost their land

List the impacts of the WSC

Banking crisis, gross national product, world economy

Describe the impact of WSC on the banking crisis

1933: >5000 banks closed down, people had to repay banks with assets (not cash), 1929: 659 banks fallen --> trust stopped + savings withdrawal, 1930: 1352 banks went bankrupt

Describe the impact of WSC on the Gross National Product

US GNP decreased by nearly half after crash, 1929: $103.1 billion --> 1933: $55.6 billion

Describe the impact of WSC on the world economy

Germany: industrial productivity decreased by >40%

What was the impact of the Great Depression on Farmers

1930s: drought hit American farmers, unable to pay debts, 'Farm Strikes', many became migrants picking up work where they could, suffered from malnutrition

What were 'Farm Strikes'?

When farmers set up blockades on farm products and prevented delivery trucks from entering cities

What was the impact of the Great Depression on Businesses/Workers

1933: level of unemployment had risen to 25% ~13 mill Americans - highest rate in US economic history - no. didn't drop below 10% until US joined WW2 in 1939

What was the impact of the Great Depression on American Economy

Lost confidence in country's financial system: people withdrew savings from banks, banks unable to fulfil withdrawals - had invested money in stock market

Data for Impact of the Great Depression on American Economy

1930-32: deflation reached 30% --> many to become migrant workers, 1929-33: industrial production fell by 47%, By 1933: 20% American banks announced closure