Why did the US stock exchange collapse in 1929?

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  • Created on: 18-03-14 20:02
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  • Why did the US stock exchange collapse in 1929?
    • Overproduction
      • 1)Once Americans had bought their cars, radios and other consumer goods, the demand for these products fell,
      • 2)Factories were forced to produce fewer goods,
      • 3)Therefore they had to cut back on workers
      • 4) Therefore fewer people could buy the consumer goods,
    • Unequal distribution of wealth
      • 1) Even during the boom years, more than half of the American population lived 'below the poverty line' like farmers, blacks etc,
      • 2) So although the American economy was generating lots of money, it wasn't going to the people who needed it,
    • Tariff Policy
      • 1) Tariffs protected US industry at home like the Fordney-McCumber Tariff act of 1922,
      • 2)When American business men tried to sell their grain and goods abroad, other countries put tariffs on their goods,
      • 3) Therefore, the US businessmen had great difficulty selling products abroad
    • Financial Speculation
      • 1)During the 1920s, more and more of Americans were buying shares in American companies.
      • 2) It was possible to buy shares 'on the margin by paying 10% in cash and borrowing the remaining 90% from banks,
      • 3) The Wall street was enjoying a 'bull market' and share prices kept rising,
      • 4) Investors expected to be able to sell their shares of profits and settle debts. This form of gambling is called 'speculation'.
      • During 2918. share prices didn't rise by much as it had in previous years so experienced investors began to sell shares before the values fell and when other investors noticed, they began to sell and it became the 'bear market' where prices fall,

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