Andrea Zsigmond

KEY POLITICS AND MARKET SPECULATION IN THE LATE ‘20S

KEY GOVERNMENT POLICIES AND LEGISLATIVE ACTIONS

•  Proposed April of 1924

•  The United States needed a way to have the money they loaned to the Allied Powers during WWI

•  Essentially, the United States loaned Germany money in order to pay Britain and France its reparation payments

•  Britain and France then paid the United States the money it received from Germany in order to pay back their war debt to the United States

THE DAWES PLAN

RISE OF MATERIALISM AND MARKET LEVERAGE

•  Materialism: a tendency to consider material possessions and physical comfort as more important than spiritual values

•  Beginning in the 1920s, new technology was beginning to be available to the majority of Americans, not just the very rich

•  Automobiles, radios, and movies (to name a few things) were being widely used by the majority of America

•  It was based highly on luxury items rather than useful items, with Americans believing the luxuries of the very rich could satisfy them as well

RISE OF MATERIALISM

•  Market Leverage: the use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment

•  As the country was going through an economic boom at the time, buying and investing in stocks was thought to have been extremely safe

•  Use of leverage meant that if stocks went up 1% , the investor made 10%

•  People invested without thinking, mortgaging their homes and putting in their life savings, the idea of a crash never even a possibility to them

MARKET LEVERAGE

THE CRASH OF 1929

•  The stock market had peaked in August of 1929 after experiencing a decade of rapid expansion

•  By that point, unemployment rates were going up, production rates were declining, large debts and bank loans, leaving stocks in excess and worth less than they were thought to be

•  Stock prices actually began to decline late September

•  October 18 was the day the stocks really began to fall, though October 24 – Black Tuesday – was the day prices collapsed completely

HOW IT HAPPENED

•  Around $14 billion in wealth was lost due to the stock market crash

•  Only the very rich were able to get away from the crash, and they could just barely afford

•  Most Americans lost the money they could not afford to lose, so they stopped buying a lot of the items that had made so many businesses so much profit

•  Without any customers, businesses went bankrupt, and factories stopped employing people to make products that would not be purchased

•  By 1932, the United States was fully immersed in the Great Depression

THE EFFECT ON THE COUNTRY

ROLE OF INCOME DISTRIBUTION

•  Throughout the 1920s, the rich gained more and more wealth while the poor lost more and more money

•  The 1%’s income rose by 75% more money, and the rest of Americans’ income only rose by 9%

•  70% of the nation’s families earned less than $2500 a year

•  Many people did not have the amount of money to purchase luxuries or partake in the economic advancements in the 20s

UNEQUAL DISTRIBUTION OF INCOME – 1920S

•  Amount of wealth that was held by America’s 1% was at its peak in 1929 – right before the crash

•  The rich spend smaller proportions of their wealth, so when the money became concentrated in the hands of the 1%, there was less overall spending and producing

•  As the poor lost more and more money, they took out more loans and brought on more debt to get the things they wanted

•  The wealthy invested more in speculative investments

HOW IT CAUSED THE GREAT DEPRESSION