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Stock Market Speculation

Stock Market Speculation . Standard 6.3 E.Q. How did the Stock Market Crash? . Causes of the Great Depression. Fueled by “get rich quick” mentality led to inflation stock values and to a crash. Stock market was not regulated and investors were allowed to buy on a margin.

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Stock Market Speculation

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  1. Stock Market Speculation Standard 6.3 E.Q. How did the Stock Market Crash?

  2. Causes of the Great Depression • Fueled by “get rich quick” mentality led to inflation stock values and to a crash. • Stock market was not regulated and investors were allowed to buy on a margin. • Tariffs on foreign goods stopped competition • Stock market was inflated to look better.

  3. Terms of Importance • Speculation: an involvement in risky business transactions in an effort to make a quick or large profit. • Credit: An arrangement in which buyer pays later for a purchase often on an installment plan with interest charges. • Buy on the margin: The purchasing of stocks by paying only a small percentage of the price and borrowing the rest.

  4. Stock Market Crashes • When an unusual number of sell orders kicked the bottom out of the market in October 29, 1929. • Broker firms called in their margin loans. • Marked the beginning of the Great Depression. • Farmers economy collapse • Investors were forced to sell at low prices in order to meet their obligations and as a result stock prices plunged. • Black Tuesday shows an end of false prosperity.

  5. Stock Market Crashes • Though prominent bankers were able to prop up the market for several days, public confidence was shattered. • Market experienced the greatest crash in its history, • An event that symbolized the ends of the false prosperity of the 1920’s. • The Economy spiraled deeper into a depression exacerbated by the decisions of individual companies, consumers and investors as well as by the policies of the Federal Reserve.

  6. Federal Reserve • Established in 1913 as the nation’s central bank, had the capacity to regulate the money supply by making loans to banks, • Make loans to businesses, who hire workers, who buy products. • Early 1920’s the Federal Reserve pursued easy credit policies. • By charging low interests rates on its loans to member banks, The FED helped to fuel the stock market speculation mania.

  7. Federal Reserve • Late 1920’s the Federal initiated a tight money strategy in an effort to curve stock market speculation. • By charging higher interest rates for their loans, the FED discouraged lending. • They tightened the money supply even more thus making it even harder to limit the effects of the crash. • IF the FED had cut interest rates and expanded the money supply, the Depression may not have been as intense or as long lasting.

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