Parallels Between The Causes Of The 1929 Wall Street Crash And The Current Credit Crisis
The 1929 Wall Street crash was caused by weaknesses in the US economy. After WW1 the USA experienced a decade of economic growth generated by the levels of mass production and industrial growth during the war years. This along with the popular culture of success (the Jazz and party scene) made America appear a hugely prosperous country. However, the glitz and glamour of USA was superficial as very few reaped the benefits of this wealth. There were also many weaknesses to this economic growth as it was not achieved in a wholly sustainable way. This can be compared to the USA of the …show more content…
During the 1920s speculating on the stock market had become extremely popular. 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