Overproduction and its Weakness
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Overproduction and its Weakness
There were many problems that occurred as soon as WWI ended. Such as
Overproduction was going on all through the war, and it did not stop as soon as
the war came to an end. The reason overproduction came into effect in the first place,
was because america had to feed the soldiers and the allies, therefore, the goverment
constantly pushed farmers to grow more crops.
When the war was over, instead of decreasing the crop amount, farmers grew the
same number of crops. Not as many people were in America, therefore, less people
bought less amounts of food. In order for people to buy more food, the goverment
believed that if the prices plummeted, the sales would increase, unfortunately, it did not
happen that way.
Overproduction not only hurt the farmers, but it also hurt the rest of the economy.
Since the food was not selling well, the stores began to order less food from the farmers.
Since the farmers were not making quite as much money, they had to do either of the three
following things: A) Lay off workers
B) Reduce their pay
C) Cut down on maintenance of machinery.
If any of those possibilities were done, then the workers would not have extra spending
money. Therefore, they would not be able to go to the store and buy as much food as
necessary, therefore, the gradual domino effect continued.
Overproduction not only hurt the manufaturers but it also greatly hurt the citizens
that lived in the USA. Overproduction was also one of the leading “sparke” that set of the
The Stock Market Crash of 1929
In the 1920’s many people relied on the stock market. Many people wanted to get
rich fast, others just wanted to get some extra cash. It was believed that the easiest way to
do so was to invest in the stock market.
The stock market works in the following way: A person believes that a certain
company is doing very well, therefore, that person goes out and buys himself a share (a
portion) of the company. In order for the person to own a share, he must have enough
money to buy it. Unless, this person decides to buy on margin, which means loaning
money from the bank, when you earn the money back, you promise to repay the bank.
After the investor buys his portion, he begins to see that it is going up in cost. Right then
he knows that he must go sell it for a price higher than he bought it for.
This process was thought to be a “get rich scheme.” Many people invested in the
stocks and prospered greatly Others lost everything that they had due to the stock
Some of the people that bought these stocks were taking a big risk. They usually
bought the stock for a very short term. They would buy and sell the stock(s) very quickly
hoping to make millions of dollars. Therefore, without thinking about it, they would buy
the stocks on margin, assuming that they would get loads of, money and be able to pay the
banks back in full. Unfortunately, thus was not always true. If the week the investor
bought a share and it plummeted, the owner or investor would lose all the money he
invested in this small share. He would not be able to repay the bank, this put the investor
Before 1929, all was well. People put money into the market, and most of the
time they prospered. Since the market was doing so exceptionally well, it was named the
People did not think that others would stop buying shares, therefore, many
invested their life-savings. Unfortunately, in the summer of 1929, all turned against the
investors. People began to get more cautious with their money. They saw that the prices
of shares were dropping, so they did not feel the need to buy anymore stock. Others just
lost most of their money in this small gamble. Those who lost the money were usually
also in debt with the bank. The bank was losing its money thanks to the speculators, the
“get rich quick people.”
People began to sense the great dangers of the banks losing its money, they sensed
that if the bank lost enough money they would go out of business
On Black Tuesday, the stock market crashed due to the loss of its investors.
People rushed to the banks to get whatever was left of their
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Economy, Finance, Money, Stock market, Financial crises, Financial regulation, Systemic risk, Wall Street Crash, Short, Financial market, Saving, Great Depression
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