US Economy in the 1920s: Boom, Bust, and Depression
The Roaring Twenties
The role of the U.S. accelerated the growth of industrial production, accompanied by a profound change in the structure of its economy. The increase generated a growing surplus in its trade balance.
Economic Growth
The U.S. economic expansion was due to changing production dominated by technical innovation and changes in work organization.
There was also a high turnover in the energy sector, with an increase in electricity and oil.
Other sectors were consolidated that stimulated other sectors.
The automobile sector was emblematic of the boom, the first to apply the use of assembly lines, producing very positive effects in several sectors.
Construction became especially general—building towering skyscrapers in big cities.
All this, amid a process of concentration, resulted in increased productivity and reduced production costs.
Revolution of Consumers
- Change of sale systems.
The small businesses had to deal with chains of stores that set a new method of purchase (hire purchase or credit) that allowed a family to increase its purchases.
The desire to sell favored advertising and marketing.
The increased consumption entailed a revolution of purchasers.
The confidence of much of the population to buy resulted in large household indebtedness.
Unequal Distribution of Income
- Improving the purchasing power of workers accounted for increased production. So in a few years of production, it generated what became a problem for the U.S. economy.
Agriculture was the sector most affected by the decade of the Roaring Twenties.
The stock market fever.
The stock market boom was the result of a good business situation and its favorable prospects. The rise of prices generated a speculative bubble (increased share value caused mainly by the belief among investors that when bought before, the greater the profit to be gained). The result, there was a surplus stock.
The interest of the bag was to small investors who at first believed that they could return by selling some shares, which in turn was bought by retail investors also on credit.
The problem began when in 1929 the stock value began to decline.
Why Broke the New York Stock Exchange?
Because some investors, upon the belief that prices could not keep up, put their shares up for sale hoping to get even more benefits.
- The huge offer entailed the collapse of share value, which caused “Black Thursday” (October 24, 1929). Panic gripped investors.
The plummeting value of the shares ruined many investors. Requiring banks to cancel loans for stock purchases behaved another wave of giving rise to “Black Tuesday” (October 29). The path to the depression had begun.
The Great Depression
Causes
The showing on industrial production growth rate that was brewing in the U.S.
The liquidity crisis (lack of resources to pay debts) helped spread the crisis. The drop in stocks generated a chain of default.
In turn, the desire to sell at any price the goods produced accelerated the decline in prices (deflation).
The fall in consumption caused by the strike led to a decrease in purchasing power, fear of layoffs and falling agricultural prices, and indebtedness caused by the lasting acquisition of consumer durables.
Industrial and Banking Crisis
Overproduction, lack of money, and the fall in consumption caused the crisis within months of the bag from becoming a crisis that ended up affecting all sectors of the economy.
The banking system was a major hit as debtors could not repay their loans and most banks had accepted shares of stock as collateral for loans. All this developed the banking crisis, where banks went bankrupt and disappeared, were destroyed, and families lost everything they had.
Therefore the banks reduced lending and the collapse of stock market investors and reduced credit crisis prompted the industry.
The fall in industrial activity caused unemployment and large tube depression and social consequences of poverty spread among broad layers of the population.
Unemployment further aggravated the contraction in demand, millions of unemployed with no income left to consume, and those who were unemployed did not receive savings.
By reducing demand decreased again from industrial and agricultural production.
The other crisis crisis.