Wall Street crash
Overproduction
Consumption as artificially created through hire purchase schemes
Thousands were buying goods and paying a small %
Between 1920-29 - US manufacturing capacity rose 50% by exports only rose by 38%
Potential markets were lost when Russia went communist in 1947
Once confidence fell in the economy following the crash - consumer spending fell massively
European market was affected by WWI and Germany had to pay reperations
Disparity of wealth meant the boom was unsustainable
Fordney-McCumber Tariff limited trade with the world - other countries had tariffs of their own on the US
Too many goods were being produced but the economy lacked spending power
By the late 1920s, the US economy reached capacity in what the domestic market could consume
US economy lacked spending power to buy all goods produced - 40% of population owned 12.5% of the wealth
Land speculation
By 1926 the Land Boom collapsed - lack of infrastructure like roads and railways impeded development
Swindlers gave the land boom a bad name caused a loss in confidence
Thousands of new houses were built at Miami between 1920 and 1925 - Miami population grew by 100,000
1925 - International Revenue Service taxed profits on property speculation which reduced levels of speculation
Growth of motor cars made it made attractive
Sept 1926 - hurricane which killed 400 people and left 50,000 homeless
Rich industrialists like the Du Pont saw the possibility of land and selling it to the prosperous population who faced cold winters
This dissuaded many from investing in property - only a trickle of investors were buying property by 1927
As incomes rose owning property in the 'sunshine state' was attractive
Prelude to the crash occurred in 1926 in Florida
Bull market
Once shares prices fell speculation began to unravel
Described as a 'mad orgy of speculation' by Hoover
They would aim to pay back through selling the share at a higher price
1929-30 share speculators lost money and some went bankrupt
By 1929 people were buying shares at the margin - borrow money and buy shares at 10% of the price
Once confidence fell it triggered a share sale panic
Idea that Americans could 'get rich quick' through buying shares
Some had warned about this - Moody's Investment Service and Harvard Economic society warned about share prices falling
Went from $34bn to $64
Share values in NYSE nearly doubled between 1925 and 1929
These warnings were not heeded by the majority of share purchasers
Bull market - where share prices increase
Weakness of the US banking system
Lead to closures as debtors were unable to pay
Between 1921 and 1928 5000 banks went out of business
Banks had limited stocks of money - when faced with bad debt they called loans
1929 - 659 suspended operations as the banks were providing money through loans
There were thousands of banks in America
McFadden-Pepper Act 1927 gave big city commercial banks extra power to compete against small rural banks
2/3 of US banks operated in unregulated market without clear controls on how to operate - led to high risk lending
Glass-Stegall Act 1933 created a modern banking system which allowed the US economy to get out of the depression
Problems would've been minimised if there was regulation
Those who deposited money in the bank lost it
Call loans were a problem - loans to individuals who bought shares on the margin - once share prices fell in 1929 thousands of banks were in debt as borrowers couldn't repay
Much of the money banks borrowed went into share speculation and property investments
Federal Reserve Board kept US interest rates low at 3.5% in 1927 which led to borrowing by banks