Question

In stock market crash, What were the major differences between the 1920s and the 1930s? How did the end of WWI affect the U.S. economy? Explain the relationship between Liberty Bonds, “Investing Culture”, Margin Buying, and the rapid appreciation of stock values in the 1920s? Why did the major bankers meet at J.P Morgan’s office across the street from the NYSE? What did they subsequently do? How did the “Liquidity Crisis” compound an even greater contraction in GDP after stock prices collapsed? What means did Roosevelt implement to help stabilize stock markets immediately and long-term? What effects did the Great Depression have internationally? Do you see any parallels today?

Answer 1

Answering first four parts :-

1) Difference between 1920 and 1930 stock market crash :-

In 1929 the stock market crashed because there were low wages perforation of Debt , struggling agricultural sector and an excess of of large bank loans that could not be liquidated.

This lasted over 4 years because the bursting of speculative bubble in shares lead to to Further selling as people who had borrowed money to buy shares had to cash them in when there loans were called in .This great crash of Wall Street led to the Great Depression.

This lasted around for an year and triggered the the economic recession along with the doubts about the the effectiveness of Franklin D Roosevelt new deal policy .Thus we conclude that 1930 recession was an after effect of 1920's recession itself .

2) How did end of WW1 affected US economy :-

During first two and a half years of the war the United States was a neutral party which led to Boom in its economy.

1) the total value of US Exports grew from dollar 2.4 billion in 1913 $6.2 billion in 1917.

2) real plant and equipments were added in those sectors where demand from other countries were increasing.

3) this flood of money into the manufacturing sector from both home and abroad lead to a welcome rise in employment for American workers therefore the US unemployment rate dropped from 16.4% in 1914 to 6.3 percent in 1916.

4). This fall in unemployment increased available jobs and shrinking labor pool due to which emigration dropped immensely

5) the manufacturing wages increased dramatically doubling from an average dollar 11 a week in 1914 up to dollar 22 week in 1919.

6) the increase customer buying power help stimulate the national economy in the later stages of the war.

3) Relationship between Liberty bonds , Investing culture ,Margin buying and rapid appreciation of stock :-

A liberty Bond it was a war Bond that was sold in the United States to support the allied cause in World War 1 and subscribing to the bond became a symbol of Patriotic duty in the United States.

Buying on margin is the purchase of an asset by using leverage and borrowing where the initial down payment made to the broker for the Asset being purchased is done by 10% down payment and the subsequent 90% is financed. Buying on margin became a popular concept by the late 1920 where more and more people bought stocks with borrowed money ethat led to the demand of stocks increased which in turn increase the prices of the stocks in the stock market leading up to doubling of the stock market and appreciation of stock values in 1920 .

4) Bankers meet at JP Morgan office :-

On Thursday October 24 1929 stock market prices suddenly plummeted ,10 billion dollars in investments disappeared in a matter of hours, panicked selling set in in stock sunk to record lows and stand investors crowded the New York stock exchange demanding answers therefore leading bankers met privately at the offices of JP Morgan and raised millions in personal and institutional contributions to hold the slide. They March across the street and ceremoniously bought stocks at inflated prices the market temporally stabilized however due to spreading of fears most of the frightened investors dumped their portfolios to avoid further losses .This lead to the black Tuesday stock market crash.