crash and depression

    Cards (11)

    • Why was there a Great Crash in 1929? - wall street over-heated
      ●   Between 1924-29 the value of shares rose 5 times.  
      ●   Share prices rose way beyond what the firms they were shares were worth; only speculation kept up the over-inflated prices.
    • why was there a great crash in 1929? - speculation
      ●   Many people became speculators - 600,000 by 1929.
      ●   Many people were buying shares 'on the margin' (borrowing 90% of the share value to buy the shares, hoping to pay back the loan with the profit they made on the sale).   American speculators borrowed $9bn for speculating in 1929.
      ●   Some firms which were not sound investments floated shares (e.g. one was set up to develop a South American mine which did not exist), but people still bought them, because they expected to make a profit in the bull market.
    • why was there a great crash in 1929? - corruption
       the Senate Committee set up to investigate the Great Crash found that there was a corruption and 'insider-trading' between the banks and the brokers.
    • why was there a great crash in 1929? - panic
      • March and September 1929: Losses of confidence, influenced by economist Roger Babson's crash forecast.
      • Banks engaged in mass-buying of shares to stabilize the market.
      • October 24, 1929: Panic selling resulted in nearly 13 million shares sold, leading to a crash.
      • Banks attempted to support the market, but heavy selling on Monday proved futile.
      • Speculators feared massive loans and worthless shares, leading to panic.
      • October 29, 1929: Market slumped again with the sale of 16 million shares.
    • why was there a great depression in the 1930s? - explanation at the time
      • People initially uncertain about the cause of the Great Depression.
      • Herbert Hoover attributed it to the European financial collapse in 1931, shifting blame away from America.
      • Economist John Maynard Keynes, in 1936, proposed a theory: Depression resulted from a drop in spending due to excessive saving.
      • Roosevelt adopted Keynesian ideas, responding by injecting money into the U.S. economy to boost spending.
      • Increased spending did not effectively alleviate the Depression, challenging the Keynesian approach.
    • why was there a great depression in the 1930s? - great crash
      • Great Crash of 1929 not considered the sole cause of the Great Depression.
      • Limited impact on the general population with only 1.5 million shareholders and 600,000 speculators affected.
      • Bull market leading to the crash heavily reliant on $8.5 billion in brokers' loans.
      • Banks and major companies, controlling half of US industry, faced bankruptcy, causing widespread economic damage.
    • why was there a great depression in the 1930s? - the fed
      • In the 1940s, economist Milton Friedman introduced 'monetarism' to explain the Great Depression.
      • Friedman blamed the US Federal Reserve for raising interest rates in 1931, reducing the money supply.
      • He asserted that the banks going bankrupt after 1931 and the Gold Standard worsened the economic situation.
      • Friedman's famous saying was that 'the Fed put the Great in the Great Depression.'
    • why was there a great depression in the 1930s? - tariffs
      • in 1930, fearing for the US economy, the government passed the Smoot-Hawley Tariff – a new, even heavier tariff law.  
      • Sixty countries passed retaliatory tariffs in response and world trade slumped.   This damaged US industry, especially agriculture.
    • why was there a great depression in the 1930s? - Maldistribution of wealth
      • Historians today consider wealth inequality a significant cause of the Great Depression.
      • In the 1930s, extreme wealth concentration saw the top 5% owning a third of the wealth, while 40% of the population lived in poverty.
      • The issue wasn't insufficient money, but rather it wasn't in the hands of those who would spend it.
      • Result: Overproduction, insufficient consumer spending, and plummeting prices contributed to the economic downturn.
    • why was there a great depression in the 1930s? - weakness in the economy
      You will remember that Agriculture, and the Coal, Iron and Textiles industries were all experiencing problems in the 1920s. When the Depression started, they were not strong enough to cope, and collapsed quickly.
    • why was there a great depression in the 1930s? - cycle of depression
      As more banks and companies failed, and people were put out of work, they had less to spend, and so more companies went bankrupt and made their workers unemployed etc. Once the Depression had taken hold, it simply spiralled down worse and worse.