18/03/14
I have finished talking about the “roaring twenties” and the Wall Street Crash. I am now busy talking about the Great depression.
Question: “The prosperity of the “boom years” , led to the extravagant lifestyles for the wealthy which eventually led to the collapse of the Wall Street stock market”
Do you agree with the statement?
Critically discuss the reasons for the 1929 Wall Street stock crash as well as the economic and social impact of the crash in USA.
The Wall Street Crash was the most devastating crash in the history of the United States of America it is believed that the stock market crash lead to what is known as the great depression. The great depression lasted 10 years. During the great depression consumer spending and investment declined. This caused companies to lay off workers. In 1933 The Great Depression reached its lowest point. At this time 15 million Americans were unemployed and due to the stock market crash half the country’s banks closed.
The Great War had just ended and America is enjoying their spoils of war. The economy flourished. This was the start of the “roaring twenties” (1920 – 1929). The Government tried to help American businesses by increasing taxes on foreign goods coming into America. The demand on American goods increased due to the economic boom (Consumerism). Credit was introduced during this time, before you would need a substantial amount. During the war, people were trained in the production of propaganda. When the war was over these people used their skills to create advertisements that persuade people to buy new products. Credit was also a new term. Previously people could only borrow money if they were quite well off or if they pawned items. The new industry meant that people could put down a small deposit and pay the rest off over time. This meant that people could now buy things that they previously were unable to purchase. There was also the car industry; Henry Ford had an idea of creating a cheap car many people could afford. This didn’t only make him rich but also helped create a ‘cycle of prosperity’ that saw people get jobs in related industries such as rubber and metal production. Henry Ford used ‘mass production’ techniques to help build cars more efficiently and costly.
The Republican Party placed policies that changed America forever. They believed in ‘Rugged Individualism’ (the idea that people should look after themselves). Their first policy was the Laissez Faire; this meant that governments shouldn’t interfere in people’s lives. This left people to make their own decisions (how to make and spend money). The second policy was “Low Taxes” this policy went hand in hand with the Laissez Faire policy. If the government didn’t interfere than the government did not need to raise taxes in order to spend them on governmental schemes. The third policy was ‘Tariffs’ The policy helped American businesses by making American goods look like better value for money. The Fourth and last policy is “Trusts and super corporations’ this policy was also related to the idea of Laissez faire. The government believed that if they didn’t stop companies from getting too powerful than the company can sell goods for a very cheap price.With the strength of the economy people felt the stock market was an easy way to make money. Some consumers took out loans to buy shares. This was called “Buying on Margin”. This meant that they would put down some of their own money; the rest would be borrowed from a broker. However buying on margin was a very risky practice, if the price of stock falls lower than the loan amount, the broker will issue a ‘margin call’ and the buyer must pay the cash back immediately. In the 1920s investors put down about 10 – 20 percent of their own money, borrowing about 80 – 90 percent of the cost of the stock. Due to this many ‘speculators’ bought stocks on margin and neglected the risks that came with the practice. Profits gained from trading seemed easy that many companies and some backs decided to place their customers’ money in the stock market.
There were early signs of the stock market crash. Five days prior to that fateful day stock prices plummeted. This made a large amount of people sell their stocks. Margin calls were sent out by banks. People had their eyes peeled on the stocks closely watching the rises and falls of stocks. A crowd gathered New York‘s Stock Exchange on Wall Street. Rumours circulated of people committing suicide. Stress ensued in the stock market. The next day several banks put up their money and invested into the stock market to convince the investors to stop selling their stocks. It had in fact given some relief to those who had their money in the stock market (however it wasn’t enough). October 29 1929 on “Black Tuesday”. This was the worst day in stock market history. Millions of investors were in a panic. This made millions rush to sell their stocks. With Everyone selling and no one buying an imbalance ensued. Even banks were selling the stocks. Over 16.4 Million stocks were sold that day. Stocks continued to be sold over the next few days. The drop continued for the next two years. The Market lost $14 Billion in value. In a week this reached $30 Billion. Thousands of investors who believed they could get rich by investing on margin lost everything. They lost their saving, homes and dreams. The stock market crash severely impacted the American economy.
The United States had now fallen into what is known as the Great Depression. Banks were closing at an alarming rate. This caused millions of Americans to lose all their savings. People saw that banks started closing and this lead to people taking their money out of the banks in America, because so many people were taking money from banks, more banks were closing. In 1933 alone an estimate of 4 000 banks had closed. In total an estimate of 9 000 banks had failed. In 1933 Franklin D Roosevelt became president. Many people believe that Franklin D Roosevelt got America out of the great depression because of the “new deal”.
The First New Deal (1933 – 1934): On Roosevelts second day in office, he declared a “bank holiday” this was a four day nation banking holiday. It kept banks closed until congress could act. He then had a special session with congress. On 9 March congress passed the Emergency Banking Act. This was used to help stabilize the banking system by re – instilling investor confidence. This act drastically helped the banks, over half the currency which was stashed away before the bank suspension. The next act passed was the Cullen Harrison Act. This legalised the sale of alcohol with a content of below 3.2% alcohol.