11-21-06 hist 124 - 21 November 2006 Explanatory factors in...

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21 November 2006 Explanatory factors in Great Depression: o Overproduction – or is it under-consumption? Were the factories producing too much, or were American workers not purchasing as much as they need to Everyone was aware starting at the beginning of 1927 that there were some severe structural problems with the American economy Every time an expert would raise a concern, someone would always assure them that nothing was really wrong, America was fine In the late 1920s, a decline in relative wages (wages were growing at a slower rate than the production of good) and depressed consumerism (about 1927, -28, -29) 40% wage growth (1920 – 1929) They had reached a point that production levels could no longer reach potential consumers in 1927 Most economists felt this was okay By shifting the sharing of profit from the workers to the management was a good thing because that new revenue would go into increased investment; this would increasingly lower the per- unit costs Investment in capital goods peaked in 1927 Republicans decided that in _______ to favor saving rather than spending Starting in 1927, great financial institutions began doubting the potential of consumerism and consumer investment o They put a cap on investment Incomes did not match the goods available, increasingly each year This caused less spending Demand starting leveling off Unsold inventories began to stack up Workers started to be laid-off **One of the reasons for the boom in the post-war period was due to the country’s ability to lower per-unit costs and thus expanding the consumer market** It became a question of were the mechanisms used by the government an influence upon the Depression? o Excessive levels of corporate and individual debt Corporate debt had expanded dramatically after 1926 after investment dramatically declined Companies began to conceal their weakness As deflation set in after the crash, their debt exceeded by 60% of any income that they could have possibly earned
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Companies that had barrowed to expand capital, etc., went bankrupt and shut down Personal debt increased in the 1920s, particularly in the middle class 90% of stock purchases on the NYSE between 1927 and 1929 was purchased with loans o Stock brokers promoted this because they wanted to keep the business booming o Most believed that the economic boom was never going to end, and the surest way to wealth and personal independence was to invest in the stock market Fear of economical planning, undermined economic practices The speculative frenzy on the stock market was largely based upon the availability of credit Majority of stocks after 1929 were worthless But, the loans taken out to buy those loans still needed to be paid back o Bankruptcy became the logical answer **The only section of the economy that could have possibly resparked the economy (those who took financial risks) had
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11-21-06 hist 124 - 21 November 2006 Explanatory factors in...

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