USA Flashcards
3 causes of the Wall st crash of 1929.
One cause of the wall st crash was the over-confidence of americans. In the 1920s share prices continuously rose and many americans had the impression investing in the stock market was an auspicious business that was practically a one-way bet. This elicited the over-confidence of regular americans in the stock market and even caused some regular americans to start buying shares on margin.
Another cause of the wall st crash were ‘bull pools’. Also know as ‘pump and dump’ investing, groups of traders who practiced this form of investing set out to artificially increase prices by repeatedly by shares from each other. This fooled less experienced investors who already had a tendency to invest irrationally because of their over-confidence into buying these shares. This meant that the price of shares were no longer driven by economic fundamentals but rather by the irrational exuberance of regular americans. This led to an unrealistic surge in prices - 1925 - total value of shares: $34 billion –> 1929 - 64 billion
Economic boom period of 44 months following WW1 induced the over-confidence and decadence of certain americans.
Factors that accentuated the effects of the Wall st Crash:
Fall in the demand for agricultural goods after ww1 led to the fall of the price of crops which affected farmers’ income. Farmers started to migrate from rural to urban areas seeking for jobs.
Small banks that comprised most of the banking sector did not have the cash to handle the masses of customers who wanted to withdraw their savings. Customers only got 10 cents on the dollar back from their savings accounts since banks illegally reinvested this capital without their clients knowing.
Germany was one of the european countries in desperate need for US financing, and when the USA recalled their loan, Germany went in a state of chaos with imminent hyperinflation.
Increase in number of shares available to buy from 1925 to 1929?
500 thousand –> 1.1 million
as a result, businesses had more capital to expand their operation and hire more people
How many shares unloaded on ‘Black Tuesday’ and on ‘Black Thursday”?
13 million and 16 million shares unloaded en masse
Evolution of the price of shares through the Crash (General motors)?
March 1928: 1.40$ –> September 1929: 1.82$ –> 13 November 1929: 0.36$
How much money lost?
26 billion of value vanished
Consequences of the Crash on banking?
From 1930 onward, 9 thousand of 25 thousand banks existing since 1925 were closed and 650 closed directly due to lack of capital.
9 million Americans lost 2.5 billion in savings
1930 - New York City Bank unable to pay 400 thousand of its clients their savings of 286 million
Consequences of the crash on agricultural sector?
Farmers’ earning went from 6 billion in 1929 –> 2 billion in 1932 due to the fall in crop prices
Demand was nowhere near as high after the war despite the means of production(mechanized and improved farm practices) being able to capacitate the same high levels of production which led to the surplus of crops
Since their income was undermined, they could not maintain their business and redeem the loans and mortgages they issued to buy land and equipment –> 1/3 of farmers lost their land and rural to urban migration led to 2 million settling in sprawling cities
Aims of FDR?
Recovery: End to crisis in industry(higher rates of production), banking and agricultural(increased income for farmers) sectors
Relief: Fulfill immediate need of food with short term projects, alleviate effects of unemployment by providing states with funding
Reform: reform US through Social Security and regulation of banks and businesses to protect its citizens, reorganization and expansion of the federal government, stimulation of the economy in order to restore jobs, thus consumer spending –> ‘priming the pump’
1st 100 days?
‘Brains trust’ - group of specialists advising FDR
‘Fireside chats’ - evening radio addresses given by FDR to his listeners(52 million)
Emergency Banking Act - Banks forced to close for 4 days to be audited(financially inspected), and only stable ones to be reopened
Beer and Wine Revenue Act - alcoholic beverages below 3.2% to be taxed in order to raise money for New Deal
AAA? ND
Offered subsidies to farmers to lower supply and prevent surplus; 11$ for each acre a farmer didn’t use –> demand staid just as low but supply decreased, thus prices rose again
Paid farmers to store products
FCA set up to improve mortgage contracting; helped 20% of farms
CCC was set up since AAA was not enough
NRA? ND
Set quotas on production, controlled prices
Imposed industry-wide codes of practice; banned child labor, limited working hours, eliminated unfair trade practice –> acted like a trade union
Blue NRA Eagle raised popularity among workers
2.3 million NRA businesses by 1933
FERA? ND
Passed in the 1st 100 days
granted 500 million $ to states to spend on relief; was not to be redeemed
HORA? ND
Increased mortgage maturity term from 5 to 30 years –> 1 million were able to keep their homes
CCC? ND
Gave young men manual labor jobs for 30$/month on environmental projects
Only accepted 17-23 year old, so only employed 500 thousand by 1935, however over its entire course, it employed 3 million young unmarried men in total
TVA? ND
Southern states had hot helped citizens enough, so the Tennessee Valley Authority was set up to help 7 states recover and relieve immediate needs:
Provided work
extended electrical coverage to farms
controlled flooding and improved land productivity
1936 - Completed its first project, the Norris Dam
20 dams planned to be built
Educated farmers on safe farm practices to hedge against environmental disasters
2nd D?
2 years of ND since 1933 and income was still low
November 1934 Congressional elections brought reformist politicians + Supreme Court shut down some ND agencies –> 2nd Deal
WPA? 2nd D
Harry hopkins in charge
Spent 11 billion$ on short-term work schemes that employed 8 million
Mostly employed unskilled workers in manual labor and built public works infrastructure projects; e.g. road building
also helped students stay in college, organised sewing classes for women, guidebook writing for artists
e.g. National Health Survey which revealed 2 million cases of serious illnesses go without treatment every year ++> WPA sends nurses to the homes of the poor, builds hospitals, provides medical and dental treatment to those who otherwise cant afford
Shortcomings of the WPA? 2nd Deal
WPA’s quota limited its effects; in NY, it employed 225 thousand but left 750 thousand without help because it had reached its quota
Housing? 2nd Deal
Resettlement Administration built suburban towns for the homeless
-Only 3 were constructed + Congress legalized the Housing act to replace shanty towns
Farmers? 2nd Deal
AAA was revoked by SC in 1936
2nd AAA imposed compulsory quotas to limit production –> any surplus was heavily taxed –> helped FG control prices
FSA(farm security administration) set up in 1937:
Provided cheap loans to buy farms; by 1941, $1 billion had been issued in loans
set up migrant camps with doctors for migrating farmers moving into cities
Pensions and social security? 2nd D
FDR created social security in 1935
Before 1935, USA had no national pensioning system:
-Employees paid 1% income to pension fund; matched contribution by the employer
-Employer of more than 8 paid payroll tax to provide unemployment insurance at half the normal rate
Federal grants to states dedicated to poor, old and disabled
Impacts –> $50 million set aside for elderly, and 25 for for children
by 1939 –> 7000 children helped
Shortcomings of the pension system? 2nd D
Domestic servant and agricultural workers not included
Self-funded so could not act immediately
NLRA (Wagner Act)? 2nd D
NRA was invalidated by SC in 1935
NLRA replaced it:
Strengthened trade unions: workers were legally entitled to join, firing union members unfairly was banned; NLRB (National Labour Relations Board) hosted union negotiations, legal counseling to fired workers
Union membership rose to 9 million in 1940
NLRB lawyers in 1935 = 14 –> in 1939 = 226
Many unions still went on strike to gain the recognition of companies
