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Causes of the Wall Street Crash

Long term causes:

WEAKNESSES IN THE US ECONOMY

  • Overproduction in agriculture  = driving prices down
  • Overproduction of consumer goods = driving prices down
  • Inequality= rice were very rich & poor were very poor
  • Foreign competition= reducing demand for American goods
  • The boom of the 1920s was largely based on an increased sale of consumer goods

Short term causes:

RELATED TO SHARES

  • Speculation: many ppl bought & sold shares to make quick profits instead of keeping their $ invested for some time
  • Companies forced by shareholders to pay out profits to shareholders rather than reinvesting them
  • Americans borrowed $ on credit to buy their shares
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Causes of the Wall Street Crash

The American people's share dealings depended on confidence that share prices would continue to rise

  • Once people started worrying about the long-term weaknesses in the US economy, disaster struck

Sept 1929: Prices of shares started to come down slowly at first

  • Soon people began to realize that the shares they owned were less than the loans they used to buy them
  • Suddenly everyone tried to sell their shares at once
  • Wall street crash
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Effects of the crash

Banks

  • 1929: 600 Banks failed
  • 1930: Another 1000+ banks failed
  • Around 11,000 banks stopped trading between 1929-1933

Eg: Bank of US: failed (1930) > had 400,000 depositors 

As banks started failing, people stopped trusting them & withdrew their savings 

People

  • Many were bankrupt - could not pay back the loans for the shares they bought
  • Some lost their homes because they could not pay their mortgages 
  • Some who had savings lost their $ when banks collapsed 
  • Farms suffered as banks tried to get back their loans
  • Workers faced reduced hours + wages/ unemployment > by 1933 14 million unemployed
  • Between 1929-1933 industrial & farm production fell by 40% & average wages by 60%

Americans kept their $ instead of buying goods/shares & confidence of people was shattered

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President Hoover's response to the crash

  • Most Americans blamed president Hoover for the crash, partly bc of his govt's inaction in tackling the problem
  • Hoover insisted that prosperity was "just around the corner"

Hoover tries to help

  • Set up Reconstruction Finance Corporation (RFC) 
    • Lent $ to banks, industries & agriculture 
  • Tried to restarted the economy in 1930 + 1931 by tax cuts
  • Tried to persuade business leaders not to cut wages
  • Tried to protect US industries by introducing tariffs 
    • However this strangled international trade & made the depression worse
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President Hoover's mess ups

  • Blocked the Garner-Wagner relief bill 
    • Would have allowed Congress to provide $2.1 Billion to create jobs
  • Was reluctant to change the basic Republican policies
  • Believed in 'Rugged Individualism'
    • Believed that social security was not the responsibility of the govt. 
    • Showed little sympathy for poor, starving Americans living in shanty towns called 'Hoovervilles'
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Key Republican policies

1. Isolation - USA not to get involved in foreign wars/disputes 

2. Tariffs - Placed on foreign goods> made them expensive in the USA

  • This was so that people would buy American goods instead

3. Low taxes - Helped businesses to grow and gave workers money to spend

4. Laissez- Faire : The belief that govt's should interfere as little as possible in the everyday lives of the people 

  • "Leave the businessman alone to do his job"
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