Overview. Unequal distribution of wealth Poor overseas markets Too many goods and not enough demand Heavy borrowing The Wall Street share boom Buying.

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Presentation transcript:

Overview

Unequal distribution of wealth Poor overseas markets Too many goods and not enough demand Heavy borrowing The Wall Street share boom Buying on the margin How long could the share boom last? The share bubble of speculation Did people see the crash coming??

 Many Americans could not afford to be part of the consumer society  The American boom had been built on mass production producing mass profits  However, the market for mass produced goods was limited.

 The American Government wished to protect home markets from foreign competition  Therefore it imposed high import duties  Foreign countries responded by imposing high import duties on American goods  This meant that American companies had to rely on the home market

 Home demand was not great enough to absorb all the good available  To maintain profits, employers started to cut back on labour costs  By 1928, 2 million Americans were out of work

 In the early days of the impact of mass production company profits increased  Many ordinary people started investing in companies, by buying stocks and shares, as a way of making easy money.  In the early days many people made a great deal of money

 Americans were confident that the value of stock and shares would continue to rise.  Therefore they borrowed from banks and other financial institutions to buy shares  The banks and other financial institutions shared their confidence and so would allow bigger loans than normal.  Millions of Americans were in debt

 Stockbrokers also allowed the buying of shares on credit.  The purchaser bought the shares for a 10% deposit (‘the margin’) against the hope that they could sell the shares quickly for a higher price.  Their profit would cover the balance of the original cost and make a profit for the purchaser

 The peak of the boom was 1927 ~ 1929  When share prices fell, buyers would snap up these shares, the price would rise again, and they would sell at a profit  As a result the boom kept going

 Banks realised that they were over- extended and started to raise interest rates to decrease the money available for buying on the margin  However too many people were already in too deep to pull out.