Underlying Problems In The Usa 1927 1928

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Information about Underlying Problems In The Usa 1927 1928

Published on April 23, 2008

Author: guest0e466c

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Underlying problems in the USA 1927-1928 Could the events of 1929 have been avoided by warning signs of 1927/1928?

America goes bust Thursday, 24 th October, 1929, share prices on New York stock exchange fell faster and lower than ever before. By the end of the day $4 billion had been wiped off the value of the shares, 12 million shares had changed hand, and it took until 5am the next day to clear all of the transactions. This began the collapse of the New York stock market, known as the Wall Street Crash.

Thursday, 24 th October, 1929, share prices on New York stock exchange fell faster and lower than ever before.

By the end of the day $4 billion had been wiped off the value of the shares, 12 million shares had changed hand, and it took until 5am the next day to clear all of the transactions.

This began the collapse of the New York stock market, known as the Wall Street Crash.

What were the underlying weaknesses of the US economy? 1. Unequal distribution of wealth 60% of US families had an income of less than $2000 p.a, the minimum thought necessary for survival. The top 5% of Americans owned 1/3 rd of the total personal income. High profits gained from mass production had been paid to investors rather than workers. 80% of Americans had no savings at all.

60% of US families had an income of less than $2000 p.a, the minimum thought necessary for survival.

The top 5% of Americans owned 1/3 rd of the total personal income.

High profits gained from mass production had been paid to investors rather than workers.

80% of Americans had no savings at all.

Other distribution issues The US banking system was not integrated – when the credit system started to collapse, so did individual banks. There was little regulation of the economy – over-speculation and consumer borrowing wasn’t tracked. Only the well off could afford to buy. As output increased, it was not matched by a similar rise in the number of people who could afford to buy.

The US banking system was not integrated – when the credit system started to collapse, so did individual banks.

There was little regulation of the economy – over-speculation and consumer borrowing wasn’t tracked.

Only the well off could afford to buy. As output increased, it was not matched by a similar rise in the number of people who could afford to buy.

2. Farming problems Even amongst farmers, wealth was unevenly distributed – farmers in S. Carolina were earning only 10% of farmers in California. Farmers faced problems like over-production from mechanisation and their attempts to help themselves often made the situation worse. In the 1920s, farmers borrowed $2,000 million in mortgages – with virtually no chance of repayment. Many farmers were evicted and had to sack their workers .

Even amongst farmers, wealth was unevenly distributed – farmers in S. Carolina were earning only 10% of farmers in California.

Farmers faced problems like over-production from mechanisation and their attempts to help themselves often made the situation worse.

In the 1920s, farmers borrowed $2,000 million in mortgages – with virtually no chance of repayment.

Many farmers were evicted and had to sack their workers .

3. Trade problems The protectionist policy favoured by the Republicans had dangerous side effects. Retaliation by other countries meant that Americans couldn’t export excess stock. Cutbacks in production (mass production increased output that couldn’t be sold) resulted in unemployment , a drop in profits and eventually a drop in share prices.

The protectionist policy favoured by the Republicans had dangerous side effects.

Retaliation by other countries meant that Americans couldn’t export excess stock.

Cutbacks in production (mass production increased output that couldn’t be sold) resulted in unemployment , a drop in profits and eventually a drop in share prices.

4. Stock market speculation About 1 million Americans were ‘playing’ the stock market in the 1920s, with many more having stocks and shares. Many of the shares were bought with borrowed money, ‘buying on the margin’, which was fine when share prices were increasing. 75% of the purchase price of shares could be borrowed – encouraging excessive speculation. Summer 1929- loans from bankers to buy shares had reached $6 billion. 1925= total share value was $27 billion. October 1929= total share value was $87 billion.

About 1 million Americans were ‘playing’ the stock market in the 1920s, with many more having stocks and shares.

Many of the shares were bought with borrowed money, ‘buying on the margin’, which was fine when share prices were increasing.

75% of the purchase price of shares could be borrowed – encouraging excessive speculation.

Summer 1929- loans from bankers to buy shares had reached $6 billion.

1925= total share value was $27 billion.

October 1929= total share value was $87 billion.

Was 1927 a warning? Sale of new cars went down Fewer new houses were built – 25% decrease The rise in industrial wages slowed down Earnings decreased for American farmers Unemployment increased

Sale of new cars went down

Fewer new houses were built – 25% decrease

The rise in industrial wages slowed down

Earnings decreased for American farmers

Unemployment increased

1927 Stock market Speculators continued to buy shares in the stock market with the same enthusiasm as they had done throughout the 1920s. The Federal Reserve Board attempted to dampen speculation on the Stock Market in July 1928 by increasing interest rates. The Board also warned member banks not to lend money for speculation on the stock market. Speculation made up to 20% interest.

Speculators continued to buy shares in the stock market with the same enthusiasm as they had done throughout the 1920s.

The Federal Reserve Board attempted to dampen speculation on the Stock Market in July 1928 by increasing interest rates.

The Board also warned member banks not to lend money for speculation on the stock market.

Speculation made up to 20% interest.

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