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After World War I, both America’s allies and the defeated nations of Germany and Austria contended with disastrous economies. The Allies owed large amounts of money to U.S. banks, which had advanced them money during the war effort. Unable to repay these debts, the Allies looked to reparations from Germany and Austria to help. The economies of those countries, however, were struggling badly, and they could not pay their reparations, despite the loans that the U.S. provided to assist with their payments. The U.S. government refused to forgive these loans, and American banks were in the position of extending additional private loans to foreign governments, who used them to repay their debts to the U.S. government, essentially shifting their obligations to private banks. When other countries began to default on this second wave of private bank loans, still more strain was placed on U.S. banks, which soon sought to liquidate these loans at the first sign of a stock market crisis.

Poor income distribution among Americans compounded the problem. A strong stock market relies on today’s buyers becoming tomorrow’s sellers, and therefore it must always have an influx of new buyers. In the 1920s, this was not the case. Eighty percent of American families had virtually no savings, and only one-half to 1 percent of Americans controlled over a third of the wealth. This scenario meant that there were no new buyers coming into the marketplace, and nowhere for sellers to unload their stock as the speculation came to a close. In addition, the vast majority of Americans with limited savings lost their accounts as local banks closed, and likewise lost their jobs as investment in business and industry came to a screeching halt.

Finally, one of the most important factors in the crash was the contagion effect of panic. For much of the 1920s, the public felt confident that prosperity would continue forever, and therefore, in a self-fulfilling cycle, the market continued to grow. But once the panic began, it spread quickly and with the same cyclical results; people were worried that the market was going down, they sold their stock, and the market continued to drop. This was partly due to Americans’ inability to weather market volatility, given the limited cash surpluses they had on hand, as well as their psychological concern that economic recovery might never happen.

In the aftermath of the crash

After the crash, Hoover announced that the economy was “fundamentally sound.” On the last day of trading in 1929, the New York Stock Exchange held its annual wild and lavish party, complete with confetti, musicians, and illegal alcohol. The U.S. Department of Labor predicted that 1930 would be “a splendid employment year.” These sentiments were not as baseless as it may seem in hindsight. Historically, markets cycled up and down, and periods of growth were often followed by downturns that corrected themselves. But this time, there was no market correction; rather, the abrupt shock of the crash was followed by an even more devastating depression. Investors, along with the general public, withdrew their money from banks by the thousands, fearing the banks would go under. The more people pulled out their money in bank runs , the closer the banks came to insolvency ( [link] ).

Questions & Answers

What source did the Roman Catholic church have
robbie Reply
Please clarify: do you mean what sources do they made their authority on?
Victor
impact of coming of Portuguese in kenya
Brian Reply
impact of coming of portuguese
Brian
impact of coming of portuguese
Brian
What was the first problem that Franklin Roosevelt dealt with during his "First Hundred Days"?
Bryan Reply
The Great Depression
wy
worst cover up! they should feel dumb! they we're trapped in, on both sides of the East and West borders of the Islamic forces, Columbus was desperate and started voyage due to the events of his time!
Abdul
Which of the following protests was directly related to federal policies, and thus had the biggest impact in creating a negative public perception of Hoover presidency
Steven Reply
the Bonus Army
Victor
what mistakes did Britain mak the lost them the colonies
Victor Reply
tax without representation
JOE'S
they did not give the colinies any representation
Victor
they also imposed taxes ,such as the stamp Act, on those it is unwise to offend; lawyers, business men and other men of influence
Victor
the american revolution
Angelica Reply
what started the American revolution
Futuremfan
immediate cause: British tried to seize weapons stored by local militia which led to a confrontation
Victor
the British handling of the situation was quite inept and they allowed things to escalate out of control.
Victor
hi...can you state benefit of U.S constitution
Chimi Reply
bill of rights
Tom
it provided a political framework which provifed stability while at the same time permitting freedoms which allowed the American people to flourish
Victor
bill spelled out rights so there wpuld be no confusion
Victor
Among the major cause of American civil war, can I have a brief account on social cause?
Rinchen Reply
The issue of slavery between South America and North America that lead to the American Civil War
Sanusi
not sure what you mean by "social" causes. Do you mean things like differences between Northern ers & southerners?
Victor
The N & S developed very differently. This led to clashing outlooks and agendas. Slavery was the "irepressible conflict" that made compromise impossible.
Victor
what was the purpose of Operation Valkyrie?
Matthew Reply
I have no idea
Sanusi
that was the WWII attempt by German officers to overthrow Hitler.
Victor
which culture developed the writting system in the western hemisphere?
cierra Reply
the phoenicians
Victor
loops I mean the Maya
Victor
Treaty of Greenville
The Reply
By this treaty Indians gave up some land in exchange for am annuity of money & supplies. It followed Battle of Fallen Timbers, a decisive victory of US troops over Indian tribes organized into the Western Confederacy. It marks the beginning of modern state of Ohio.
Victor
Please keep in mind that it is not allowed to promote any social groups (whatsapp, facebook, etc...) or exchange phone numbers or email addresses on our platform.
QuizOver Reply
Columbus didn't discover ish. He stole America from the Natives
LovingN Reply
Who was Nat Turner? What was the cause and impact of the Nat Turner Rebellion?
LovingN
what is marcantlisim and its ultimate effects?
Zafar
Explain the concept of salavery how it developed and what were the subsequent consequences?
Zafar
The definition of the term "discovery" is to find something that; A. was lost or B. You were previously unaware of. By this definition (B) Columbus certainly DID discover a new continent that we now call America.
Victor
mercantilism was an economic philosophy. it held that the goal of a nation was to establish a favorable balance of trade, largely through accumulating a large supply if gold.
Victor
which culture developed the only writing systems in the western hemisphere
rose Reply
Maya
Victor
economic causes of American civil war
Samten Reply
do you mean the major causes of American civil war
CHEGWE
yes
Samten
South based on agriculture & slave labor, North industrializing & based on free labor. Their views on economic policy clashed.
Victor

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Source:  OpenStax, U.s. history. OpenStax CNX. Jan 12, 2015 Download for free at http://legacy.cnx.org/content/col11740/1.3
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