The Impacts Of Speculation On The Stock Market In The 1920s

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Register to read the introduction… People could make money in a short space of time, and they were encouraged by the fact that up to 75% of the share price could be bought ‘on margin’. This, along with easy credit policies by The Federal Reserve Bank, encouraged speculation and by 1929 loans from banks had reached $6bn. Large sections of the population were also borrowing much more than they could realistically afford. Their ability to pay back their debts depended on their wages (which at this time were not increasing) and many began to struggle and ‘default’ (eg US farmers borrowed $2000 million in mortgages which they could not repay-many were evicted and workers were sacked as a result). This problem was exasperated by the fact that 80% of Americans had no savings which could be used to pay back their loans.
The Republicans Tariff Policies were also beginning to backfire. By introducing harsh tariffs on other countries’ goods, the US provoked other countries into retaliation resulting in external tariffs on US goods. This caused major problems as the US home market for US produce had become saturated. Supply was soon surpassing demand leading to massive cut backs and
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The high growth in the US economy seen over the past decade has been fuelled by growth in services and consumerism. A significant feature of this growth was the expanding real estate market. People have been encouraged to use property as a store of value, and so the US saw a rise in the number of adjustable rate mortgages being taken out. People used rising property values to finance a consumer lifestyle and relied on house prices rising. However, once the US Housing Bubble ‘popped’ and prices began to fall, so did borrowers’ abilities to pay their mortgages. House prices did not go up, and so initial terms expired. Default activity (in which people are not able to make payments) and foreclosure activity increased dramatically and interest rates were set higher, resulting in even more people being unable to refinance. Foreclosures accelerated in 2006 /07 hitting the mortgage lenders with high credit risk first. The increase in securitization over the last decade meant that major banks and other financial institutions began to make major losses (of approx $435 billion by July 2008). Stock markets adjusted to fit the reality of low to negative

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