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THE USA: What were the causes and consequences of the Wall Street Crash?
Causes of the Wall Street Crash
What was the Wall Street Crash?
To set up a company, you need money to pay staff, rent premises, buy equipment etc.
Most companies raise this money from investors investors get a share of the company
Can get a return on their money in two ways receive a dividend (share of the profits) or sell
Company successful value of the shares is usually higher than what they were bought for.
Investors buy and sell their shares on the stock market American stock market known as
The price of shares varies from day to day more people buying than selling = prices go up
more people selling than buying = prices go down.
Much of the 1920s price of shares went up.
However Wall Street stock market crashed: enormous drop in share prices in October 1929
on the NY stock exchange.
Seemed that the stock market was an easy way to get rich quickly.
Anyone could buy and sell shares.
By 1929 20 million shareholders out of a population of 120 million.
~ 600 000 new investors were speculators.
Speculation don't intend to keep their shares for long borrow money to buy some shares
for the sole purpose of selling them again once the prices have risen, not for dividends.
Pay off loan and still have a profit.
Could buy `on margin' only had to pay 10% of the price of the shares and pay back in 3
Stock market going up more people buying + selling.
Women heavily involved in speculation.
Banks themselves got involved in speculation.
Banks lent $9 billion for speculating in 1929.
May be spending money they don't have.
1928 demand for shares at an all time high prices rapidly rising.
People confident that the prices would keep on rising would mean that there would be more
buyers than sellers.
However, people expected prices to stop rising, therefore there was a huge crash.
Weakness in the US economy:
Construction industry started its downturn in 1926.
Farming in trouble.
In the decade preceding the crash, over 500 banks had failed each year mainly small banks
who lent too much.
1929 those who could afford consumer goods had already bought them workers wages
not rising and prices not falling demand decreased.
Spent $3 billion on advertising in 1929 but to no effect.
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People in Europe could not afford surplus goods from America and had put up their own
tariffs to protect industry as a response to American tariffs.
By Summer 1929 these weaknesses beginning to show car sales slowing, industrial
output falling. Speculators became nervous about the value of their shares and began to sell
Slide in share values started slowly buy gathered pace throughout September and
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Most had no choice but to live on the road in their trucks, picking up work where they could.
Over farming and drought in the southern states millions of acres into a dust bowl and
drove farmers of their land.
Went to California searching for labouring work.
1932 `steel city' of Cleveland 50% workers unemployed.
Parks full of the homeless and unemployed at night.…read more
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Believed that social security was not the business of the govn. Laissez-Faire.
Afraid that helping them would make them less independent less willing to work.
Bonus Army Veterans of WWI who had been promised a bonus in 1945 - $1 for every day
they had been in the war and $1.50 for every day they had been in combat lump sum for
1929-31 many lost their jobs, homes, etc.…read more