On October 24, 1929 or 'black Thursday' Wall Street collapsed. This day had disastrous consequences for America's economy in the next few years. How was it that Wall Street could collapse just like that? What were the consequences for the rest of the economy in the next few years? How did the Great Depression finally solved? Read it here!
After years of economic progress began to deteriorate the economy in 1929. As a result many investors were doubting whether to hold or sell their shares. When the prices of Wall Street started to fall in the morning of October 24th, 1929, there was a lot of panic. Many investors and banks tried to sell their shares at any price. They had confidence in their stocks completely lost and it did not matter how much they received for their shares, if they were anything but. As a result, the prices of Wall Street declined even further.
Many banks had lent money to investors. More money than they actually had on hand. When the shares of investors were worth became nothing more they could not pay back the banks. Many banks thus went bankrupt. Many companies and individuals are therefore lost possessions. Black Thursday is the beginning of the economic crisis in America that will far ravage the country.
Black Thursday had the following causes:
Poor income distribution in America, the income of the population badly divided. You had a small group of rich people and a large group of less wealthy. After the rich had all the luxury goods that they have wanted for a while. However, the manufacturers of these luxury goods continued to produce through, creating a surplus. These companies got into financial difficulties and had to lay off people.
Many problems in agriculture. The problems in agriculture were mainly two reasons:
Europe falls away as its market. During the First World War was a lot of food to Europe, because Europeans could not grow it yourself. Because Europe was lost as a market, there was a massive over-production, leaving more than 500 000 farmers went bankrupt.
Farmers went modernize. To survive, many farmers went modernize their business. For this, they borrowed money from the bank. Through this modernization, output fell sharply and once again had a surplus. However, the price of agricultural products fell, so the farmers were earning less. Many farmers could not repay their debts at the bank and went bankrupt.
The Americans had too much confidence in their economy. President Coolidge and Hoover believed in the US economy could best grow by companies to give maximum freedom. Companies paid few taxes and had to abide by a few rules. Because it looked like it would continue to go well, many people bought shares with borrowed money. This makes the price of the stock rose sharply. When the shares were worth less few investors were able to repay their debts.
Few banking supervision. Hoover and Coolidge found that the government should interfere as little as possible with the economy and they also show little supervision. This allowed many banks who trusted that the economy continued to grow, lend money to almost anyone. When it went worse with the economy, many people could not repay these debts and many banks went bankrupt.
The crisis hit America into a depression. Millions of workers were laid off. In 1933 15 million people were unemployed, which was 25% of the workforce. GDP had declined in 1930 by 40%. Also decreased the wages of those who still had jobs by 40-60%.
America had after the First World War a lot of money lent to other countries so that they could rebuild their country again. When America itself got into trouble, they asked all that money back. This led to the collapse of the economy in many countries. Especially in Europe, rising unemployment.
In 1933, Franklin Delano Roosevelt was president. He was unlike the previous presidents that politics had to become more involved in the economy. He promised that the cards would be reshuffled, a New Deal. Roosevelt tried to experiment a lot to get the unemployment rate down. Some of these experiments failed, certain failures. The first major step was closing all banks. These banks were allowed to open again until they were inspected for the government. The population again had confidence in the banks and they decided to bring back their savings. As a result, the banks could not go bankrupt. Roosevelt introduced many more of these laws.
The consequences of the economic crisis was not over until after the Second World War began. The war production, the US unemployment fell to a low of 2%. This while the population had increased by 10 million. In this time quadrupling industrial production in the US The depression was finally over.