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1920s Economic Boom and Bust

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Grace McGee

on 22 February 2013

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Transcript of 1920s Economic Boom and Bust

Grace McGee
Yeyoung Park
James Worthington The Rise of American Consumerism The Stock Market Crash
of 1929 Credit and Banking
Systems Government Intervention Capacity of American Industry Boom Causes Investment Over Expansion of Credit Fordney- McCumber Tariff Law of 1922 1920s Economic Boom and Bust
(Consumerism and the Stock Market) Rapid growth in a country's economy due to wartime trade often leads to a subsequent decline from the over extension of credit and banking systems by a consumer-happy population. Advertising Industry New Consumerist Attitude Missed Warnings Risky Loans Without Reserves Recession Crushes Banks Dawes Plan of 1924 Smoot-Hawley Tariff of 1930 (THE BOOM) Laissez Faire Republican government
Wartime industrial progress resulted in overall industrial gain
Optimism and overspending
Credit more widely used as a way to "live beyond one's means"
The consumption of manufactured products skyrocketed
Technological advances brought with them new products to be bought (ex: radio, the automobile, etc.) Buying on Margin (THE BUST) The depression in the 1930s was caused by excess expansion of credit during the 1920s.
This over extension by banks caused an unnatural disequilibrium in the money markets that initially caused a boom then a bust.
Booms are sure signs of impeding busts when fueled by easy credit. The nation's largest banks were failing to maintain adequate reserves and were investing heavily in the stock market or making risky loans.
Loans to Germany and Latin America by New York City banks were especially risky.
In other words, the banking system was not well prepared to absorb the shock of a major recession. When the financial crisis of 1929 hit, there was a panic.
People withdrew money from banks, and banks went out of business.
As banks got scared and tried to call their loans, more people withdrew money and more banks closed. It was a bank panic. Teapot Dome scandal of 1921
More standardized lifestyle led to an increase in the partaking of "leisure-activities"
New forms of media such as radio allowed for much wider spread advertising
Catalog-based purchases became much more widespread Due to the "new" economic model of mass consumption, overproduction became rampant
Increased sales brought with them increased stock values, and all the problems that come with them
Paying with money one does not have becomes all too common
Overly optimistic economic viewpoints lead to problems The Crash of 1929 New era of enthusiasm, confidence, and optimism
Many Americans began investing their savings in the stock market which didn’t seem risky
Increased investment caused stock prices to soar this followed by increasing and decreasing prices until 1927 and by 1928 the stock market was in full Boom.
Stock Market became the talk of the town Those who didn’t have money to buy stocks would buy on margin (put down some of their own money but barrow the rest from a broker)
Margin Call was enforced by brokers (stock would fall to a value less than the buyer barrowed; forced the barrower to pay back loan immediately) Blinded by the thought of becoming rich that they missed warning signs of the Crash of 1929
Mini crash on March 25, 1929 but reassurance of banks helped the market survive until October
Decrease in steel production, house construction, and car sales
Some acknowledgement but those who predicted a crash was coming were considered pessimists
Hit a high on September 4th which made many truly believe would plateau at a permanent high. Black Tuesday October 29, 1929: stock market completely collapsed and immediately ended the progression of the roaring twenties
Black Monday, Thursday or Friday because of the smaller fall that happened 24th of October. (also due to time zones)
Everyone was trying to sell their stock and no one was buying
Panic only grew when rumor went around that bankers were also selling Effects: 100,000 businesses failed
corporate profits fell from $10 billion to $1 billion
6,000 banks failed (nine million savings accounts = $2.5 billion loss to families and individuals)
13 million workers were unemployed (25 % of the workforce) Fall(secretary of interior) convinced secretary of navy to transfer valuable oil reserve property to interior department
Harding signed papers
Fall leased out lands for bribe of $100,000 Raised tariffs to protect factories and farms
Pro-business attitude in passing the Ad valorem tariff and promoting foreign trade through huge loans to Europe Proposed by Charles G. Dawes
Attempt to solve reparations problem, which harmed international politics following War
Plan later failed and replaced
U.S. never got paid from Europe Tariff Act of 1930 was act sponsored by Senator Reed Smoot and Representative Willis C. Hawley
Signed into law June 17, 1930
Raised U.S. tariffs on over 20,000 imported goods
tariffs under the act was the highest in the U.S. in 100 years
Reduced American exports and imports by more than half
At first a success but larger economic problems caused by weak banks Thanks for listening! The economic boom provided by World War 1 gave the twenties its "roaring" reputation but the natural bust that followed quickly led the time of prosperity into a time of depression.
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