The prosperity of the “boom year”, led to the extravagant lifestyle for the wealthy which eventually led to the collapse of the Wall Street stock market.
The economic boom of the 1920s gave most Americans faith for the future, the prosperity seemed limitless, but the prosperity was unevenly distributed. The lifestyle of the Jazz Age also led to enormous debt during the economic boom
In 1929 the stock market crashed, which caused financial ruins of million Americans. Many people believe the collapse of the stock market was one of the several factors that gave rise to the Great Depression. When President Hoover’s efforts to help the economy failed, Americans elected a Democratic president Franklin D. Roosevelt to reverse America’s economic decline
A large crowd gathered on the Wall Street outside the New York exchange to work. During the first few hours of stock trading, share prices fell sharply. The investors first remained calm. The market was not doing too well in recent weeks but resumed its upward trend. Thursday, October 24, 1929 was different as prices continued to fall, panic struck the people. Frantic orders to sell stock came pouring in.
This was not only an event that was unforgettable, the fact that economists were not able to predict it is itself a serious note. After this crash the world sunk into the Great Depression
In 1929 many people bought on margin that they had run up a budget of six billion dollars. ‘Buying on margin’ involves ‘borrowing money at a low rate to purchase stock’. Buying on margin has the effect of magnifying any profit or loss made on changes in the stock prices
One explanation for the ‘severity of the crash in 1929’ is that the preceding period was one of the excessive investment – A Great Economic ‘boom’ which led to an equal excessive ‘bust’ . Economists of the Monetarist and Austrian Schools were divided sharply. Irving Fisher, the principal of Monetarist in the 1920, failed completely to anticipate the crash while the Austrian economists ‘Ludwig Von Mises’ and ‘Friedrich Hayek’ predicted the economic crises
Some economists such as Joseph Schumpeter and Nikolaai Kondratiev have claimed the crash was ahistorical event in the continuing process known as the economic cycles. The ‘Kondratiev long-wave cycle‘ is a theory based on the study of the nineteenth century price behavior . It predicts 50-60 year long cycles of economic booms and depressions. Although stock market crash in 1929 was unexpected, it falls beyond the standard Kondratiev’s long-term economic cycle theory which itself has been subjected to some serious criticism
Before the Great Depression, the American banking system was characterized by having many small to medium sized banks. There was over 30 000 banks and as a result they were in danger of going bankrupt if there was a run where many customers wanted to withdraw their deposits. Between 1923 and 1930, 5 000 banks collapsed
Inflation is defined as money creation, the act of which tends to manifest itself through the fall in the purchasing power of money known as the ‘PPM’. For a given demand for money, an increase in its supply lowers the PPM. Inflation expectations lead the suppliers of goods to ask for prices that are above what the holders’ money can pay for. Potential buyers do not have sufficient money to purchase the goods
All Stock markets crashes are unforeseen, economists notwithstanding. This was the first lesson of history. Even though economists appear unable to predict the market with any degree of accuracy, or at least come to a ‘consensus’ on such predictions, most have learned from their mistakes
Overproduction was one of the main reasons for the Wall Street crash. During the boom businesses were overproducing, making more goods than they were selling. New manufacturing methods, such as production lines allowed factories to produce more in shorter amount of time.
Agricultural sector in the United States began to have similar difficulties. Many small farmers were driven out of business because they were not able to complete the new economic climate.
The Great Depression affected Americans in many different ways such as hunger and homelessness just to name a few. When the depression ended, most Americans got back up on their feet but as for the rest it was longer lasting. The Depression had a major long-term impact on the behavior and outlook of the millions of Americans who struggled through their hard times
The term ‘Depression’ could just as easily describe the mood of the country as well as the economy in the 1930s. More than 20 000 Americans committed suicide in 1932, a 28 percent increase over 1929. For middle class and well-to-do Americans, many who had never
“Life was difficult for many families during the depression as they struggled to make ends meet. The strain is clearly evident in the faces of these migrant children and their mothers”
Even during the hard times, Americans found ways to enjoy themselves. Many people took up inexpensive pastimes, such as reading and playing games at home. Movies and radio also offered a temporary release from economic worries Movies were a big hit during the depression. Taking pictures, which begun to replace silent films in the late 1920s, enthralled audiences, who flocked to the new movie theatres cropping up almost every town. Among the most popular movies of the early 1030s were gangster films, which portrayed tough guys fighting their way to the top against all odds. Strong women such as Bette Davis, Greta Garbo, Mae West and Marlene Dietrich, lit up the screen, reinforcing the theme to survival in a difficult world.
Therefore I do agree with the statement , the prosperity of the “boom year”, did lead to the extravagant lifestyle for the wealthy which eventually led to the collapse of the Wall Street stock market but did not alone cause the Great Depression , the World War II also played a role