(Causes of the crash) Problems in the economy Flashcards
What were the 4 significant problems in the economy that led to the Wall Street Crash?
Overproduction
Land speculation
The bull market
Weaknesses of the banking system
Overproduction - what had increased despite a drop in consumer demand?
Manufacturing
Overproduction - manufacturing increased, despite what happening?
A drop in consumer demand
Overproduction - what happened as a result of manufacturing increasing, despite a drop in consumer demand?
Workers were laid off as businesses failed to sell products.
Overproduction - workers were laid off as businesses failed to sell products.
Give evidence to illustrate the effect of this.
By 1929, 80% of Americans were living close to subsistence.
Land speculation - what happened in 1926?
The Florida Land Boom crashed.
Land speculation - in 1926, the Florida Land Boom crashed.
What happened as a result?
Investors lost millions of dollars.
The bull market - what was taking place on the stock exchange?
Speculation and get-rich-quick schemes
The bull market - what is the context of the stock market?
Limited regulation
The bull market - what did limited regulation of the stock market lead to?
Insider dealing
The bull market - how could shares be bought?
On credit
Weaknesses of the banking system - the banking system was ________ and _________.
outdated and unregulated
Weaknesses of the banking system - how many Federal Reserve Banks were there?
How many small local banks were there?
12
30,000
Weaknesses of the banking system - what is often an indicator of the health of the economy as a whole?
The health of the construction industry.
Weaknesses of the banking system - the health of the construction industry is often an indicator of the health of the economy as a whole.
Put this in the context of 1929.
By 1929, it was in recession.
What were three underlying problems in the economy that were factors to the Wall Street Crash?
The banking system.
The federal reserve board.
Get rich quick schemes (Florida land boom and The bull market).
Weaknesses of the banking system - how did the banking system create underlying problems in the economy?
(regulate, small, speculation)
Regulated themselves due government laissez-faire.
By 1920s, there was 30,000 banks and most were too small to deal with economic problems so people lost savings.
Stock market speculation
The federal reserve board - how did the federal reserve board create underlying problems in the economy?
(regulations, rates)
The govt didn’t have to interfere with regulations.
The govt favoured low interest rates.
Land speculation - how did get-rich-quick schemes, particularly the Florida land boom, create underlying problems in the economy?
(appealing, sustain, hurricanes)
Florida was appealing to middle-class buyers due to weather & climate.
Could only be sustained with more buyers than sellers.
Collapsed in 1926 when hurricanes left 50,000 people homeless.
Get-rich-quick schemes - how did get-rich-quick schemes, particularly stock market speculation, create underlying problems in the economy?
(sold, artificial, example)
People purchased stocks and shares and if the prices rose, shares were sold.
Dishonest brokers artificially put the values of the shares up and then withdrew investment, leaving companies without investors.
A famous example = Charles Ponsi. He was arrested and sent to jail.
International cycle of debt - how did loan repayments cause an international cycle of debt?
(Europe, import/export, trend)
USA was dependent on Europe repaying WW1 loans.
Fordney-McCumber Tariff 1922 made import/export price too high for European countries to ship the money and repayments back.
European countries raised their own tariffs because it was becoming a trend, resulting in less trading.
International cycle of debt - how did the Dawes Plan cause an international cycle of debt?
(loss)
USA gave Germany $2.5 billion which would be payed back but it ended up being a loss.
Government policy - how did government policy cause economic problems linked to prosperity?
(welfare)
There was little welfare under the Republican government so people suffered when the crash happened.
How did the stability of employment during prosperity cause economic problems linked to prosperity?
(union, goods, fail)
Employees couldn’t join a trade union under the Yellow Dog Contract.
Employment became unstable due to fluctuating demand for goods.
For every 4 successful businesses, 3 failed.
