The USA: 1929-33

Why did the USA fall into depression in 1929?

What were the effects of the depression on the American people.

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Overproduction

Mass production meant that goods could be produced quickly and in large amounts - however the market was becoming saturated.

Once American had bought their cars, radios, vacuum cleaners etc the demand for these items fell.

Factories were forced to produce fewer consumer goods.

This meant cutting back on their workforce - meaing fewer people could afford to buy consumer goods!

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Unequal distribution of wealth

The fall in demand was also a result of the unequal distribution of wealth.

Many Americans no longer wanted to buy new consumer goods - but there were millions more who could not afford to do so.

In 1928, many American families lived on less than $2000 a year - barely enough to survive on.

So even during the boom years many Americans were living below the poverty line.

Worst affected were famers and farm workers, black workers, immigrants and workers in old industries.

For such people the boom had never been a reality.

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Tariff policy

One way of selling surplus goods was to find new markets overseas.

However when the Americans put tariffs on foreign goods in the 1920s many foreign governments responded by doing the same thing to American goods.

So American businessmen found it difficult to sell abroad.

Soon a 'cycle of depression' had set in.

Reduced demand led to factory closures and workers being made unemployed. So there was less money to spend on consumer goods which further reduced demand and led to further closures.

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The Wall Street Crash, 1929

Prices began to fall dramatically as investors tried to sell increasing numbers of shares.

On Thursday 24th October -Black Thursday - nearly 13 million shares were sold.

Prices dived as few buyers could be found.

A group of bankers spent nearly $250,000,000 buying shares in the hope that it would encourage the buying of shares. - it seemed to work and prices stopped falling.

On Monday 28th October, there was renewed panic and over 9 million shares were sold at falling prices.

Finally on 29th October, over 16 million shares were sold by panic-stricken investors.

As a result prices tumbled - shareholders lost a total of $8000 million on that day alone.

Although this was the worst single day on the stock market, share prices continued to fall for he next few weeks until they bottomed out in mid-November. By then the damage was done.

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