Unit IX: Boom and Bust: 1921-1933

Question/Problem 4: What were the economic problems during the 1920s that led to the Stock Market Crash?

1. Overproduction. Industry produced more than people bought.

2. Declining demand for products. People who had lost jobs could not afford products.

3. "Junk Stocks." There was no accountability to stockholders. Some stocks were for businesses that produced no goods, but were set up just to sell stock certificates.

4. Speculative Investing. People invested in companies with the idea of selling the stock when its value went up instead of holding it to earn dividends.

5. Poor Banking Practices. The government did not adequately regulate the banks' use of depositors' savings accounts to speculate in the stock market. Savings accounts were not insured. If the bank failed, the depositors lost their savings.

6. Declining prices and demand for crops. Farmers had increased production during World War I. The demand for crops was less after the war, but production was still up. As crop prices fell, the farmers lost purchasing power.

7. Unemployment due to technology. Fewer Americans produced more goods. Workers were laid off.

8. Installment buying. People went into debt. When they could not pay debts, the businesses lost money.