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The Wall Street Crash

The Wall Street Crash

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The Wall Street Crash

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  1. The Wall Street Crash

  2. Causes • Many people buy shares in the hope to make quick money • If a business is thought to do well in the future, shares are bought to sell later at a profit (called speculating) • You buy shares in a business so you get a share of their profits (called a dividend) • If the business does well – the shares will rise in value • If the business does bad – the shares will decrease in value

  3. Continued… • In 1929 there was a general ‘BOOM’ as the USA provided loans and goods to Europe to aid in the recovery after WWI • If confidence in the market increases – share prices rise • Ordinary people think shares are easy money so they borrow from banks to buy shares – to sell later for a profit ($9 billion was lent by banks to speculators in 1929)

  4. Continued… • Very dangerous because if share prices fall Speculators will sell off their shares because they owe the bank – cannot risk losing • August/September, Charles Babson predicted there were too many goods and not enough customers – so prices, profits and dividends would fall • 5th September 1929 someone started selling a large amount of shares – this caused people to panic

  5. Continued… • More shares on the market – decreased value • THEREFORE • Confidence in the market is shaken • RESULT • Speculators panic and sell their shares at a loss

  6. Continued… • Eventually shares are worthless – no-one is prepared to buy them • Banks try to buy spare shares to restore confidence in market – doesn’t work • RESULT • Thousands of people left bankrupt • So banks have to close down (1929 – 659 banks close, 1930 – 1352 banks close)

  7. CRASH

  8. Questions – answers to be written in your books • How did the businesses try to keep demand high? • Why did this fail? • What could the government have done to prevent a crash happening?

  9. The Depression

  10. Because of the crash • Speculators are bankrupt • Some banks close (400,000 people lost saving when the Bank of New York crashed in 1930) • Other banks only survive by calling back the loans they had made to businesses • Businesses have to scale down – some even close • Unemployment rises – by 1933 14 million in the USA

  11. Protectionism • Government introduces/increases tariffs on foreign good – this makes them more expensive • Encourages people to by domestic goods • This policy is known as ‘Protectionism’ because it is about ‘protecting’ your home economy • This means foreign businesses suffer from the decrease in trade with the USA • Reduces market confidence – share prices start to fall

  12. Political consequences • Democracies become inward looking and defensive • USA • Britain • France • Dictatorships become aggressive and expansionist • Germany • Italy • Japan