Causes of the wall street crash

HideShow resource information
  • Created by: aggy98
  • Created on: 14-04-14 13:51
View mindmap
  • Causes of the Wall Street Crash
    • Overproduction- farmers were producing so many crops that after a while all the rich people and businesses had them, meaning no-one would buy them leading to a sudden drop in interest and prices( confidence)
      • Overproduction was a problem overall as well- lower profits began to happen due to gap between rich and poor- leading to rumours which affected the shareholders.
    • Credit from the banks:  the banks had loaned out far too much money which had been frivaously spent- meaning when people tried to get their money back there was none. This spending due to confidence also led to the problem with the shares.
      • Way too many people had bought shares on the margin- some people owned 75% of their shares with borrowed money and had used securitisation and taken out loans against the value of their homes.
    • Rumours about share prices- rumours emerged from experts as car and steel production fell. There were about 20 million shareholders and prices were at an all time high- but then these rumours caused a few people to sell meaning prices dropped and more people sold- thus beginning the cycle of depression.
    • Other countries refusing or not being able to repay their debts meant bad relations- thus making the tariffs and overproduction worse.
      • Overproduction was a problem overall as well- lower profits began to happen due to gap between rich and poor- leading to rumours which affected the shareholders.
    • Too much confidence- people had become far too reliant on wages continuing to go up- buying everything through hire purchase or on the margin- this led to many debts to the banks, which is why the crisis escalated out of control ( The Banking Crisis- see Roosevelt)
    • The Gold Standard: Britain announced it's plans to return to the gold standard in 1925, which was backed by Benjamin strong- head of the federal reserve board. This basically meant that world currencies would be tied to a fixed rate based on gold reserves. Strong kept american interest rates low in order to help this, but in 1927 as the British economy wa still struggling, he lowered them even further. Many experts say this is what led to the fatal increase in speculation- because borrowing money was now too easy.
      • The boom seemed unstoppable and the young plan of 1929 seemed to have sprted out german reperations and allied debts-Benjamin Strong's successor at leats pushed for higher interest rates but they were only raised by 1% and by then it wa stoo little too late.
        • There is an article from the New York Times in 1929 found in Rowe that shows this perfectly, it says: " it is probable that had the country's foremost shareholders not been calmed by the attitudes of leading bankers and the subsequent rally then the business of the country would have been seriously affected" Business was severely affected within days, despite the bankers attempts to buy up shares in order to restore confidence. This quote clearly shows how they really did not understand what had happened

Comments

No comments have yet been made

Similar History resources:

See all History resources »See all wall street crash resources »