"Orgy of mad Speculation" Herbert HooverThis is going to be a wild ride just follow me close! Now the 1920's saw a huge domestic (in Merica) consumption of products everything from washing machines,ovens, carts etc. this was fueled by credit which is all good as long as the market is stable. Now when the market goes crazy like Britney Spears shaving her head things can go bad fast! Many people claim that the stock market crash of 1929 started the Great Depression, but only 3% of Americans owned stock it would be massive unemployment, a sick banking system, and incompetent government that would ultimately lead to one of the saddest chapters in American history.
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Bad BanksNow credit can be scary I have already warned you of this by now. Speculation is the process of getting loans or lines of credit to buy stock in companies or land, in a sense this is betting on things you bet if that makes sense. By 1927 banks were loaning out more money for speculation than on commercial ventures or people or businesses that actually create something. This would get people rich while consumption was good, but as soon as people stopped buying things or credit dried up everything would be lost.
America's banking system was mostly made up of small banks that just relied on themselves. If there was a panic and people took their money out of the bank, that bank would fold and foreclose. Thus if you had money in that bank say sianara sister to your cash. When people lose faith in the banks you guessed people don't use them and credit dries up. And when credit dries up businesses are not expanding or hiring which leads to deflation (prices going down) you might say hurrah BUT WAIT...this is actually horrible worse than inflation because when prices go down businesses lay off workers, those workers can't buy anything, and the spiral continues. In a span of 2 years 1/3 of the banks in this country would close taking Americans money with it. |
Farm CrisisWorld War I was a huge boost to American farmers as there was a huge need to food across Europe and farm prices soared. This led to farms expanding and many buying something that cost lots of money called tractors. If you are a farmboy/girl you know these things cost a ton of money and are usually bought on credit. More people bought farms and production was huge. Unfortunately that need for food dropped off and farmers were faced with overproduction, which led to a drop in farm prices, which led to a drop in income for farmers who were facing massive debt from either buying farms or products like tractors on credit. Many had to declare bankruptcy and lost their farms. As you will see the Great Depression was not really great for anyone. Unless you enjoy being a Hobo.
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