The Bull Market itself and the Speculation, which was amidst the American population during the 1920s whilst America was going through the boom, can also be accounted for having an impact on the Great Depression. Whilst there was strengths in the economy from the Bull Market causing a rapid economic growth, and easy credit and speculation leading to a consumer boom, and credit being easy accessible, factors which seemed to appear as a strength were instead traits which were leading to the economic downfall of the Wall Street Crash. The Bull Market is a contributing factor of the Wall Street Crash that led to triggering the Great Depression. Between 1924-1929 stock price increased greatly. The rise in the stock prices encouraged Americans to purchase shares in the stock market, however the trading activity that occurred wasn’t solely out of the interest of investing in a company, but through the beliefs of speculation. Investing into the Bull Market was regarded as being a “get rich quick” scheme as once shares would increase they would immediately be sold in order to make a profit. The Bull Market created a sense of confidence that America’s economy was strong, and prosperity had seemed unshakable. The Bull Market is reflected as being an ‘irrational element in America- the Mania- that had induced the Public to invest into the Bull Market’.
The ability to still be able to invest into shares through buying ‘on the margin’ was introduced, whilst investing into the stock market was encouraged. By 1929, the Wall Street Crash saw the frenzy of the unregulated speculation which had fuelled over the stock market, with the stock prices, which were far outrunning economic growth, had come to an end and triggered the events of panic selling which rapidly decreased share prices.
Whilst the Bull Market and Speculation that was a mania during the 1920s led to the Wall Street Crash, further enforcing the Great Depression, the weaknesses in the business and the banking system also account towards playing a role for the depression of the 1930s.
The government had pursued the policies of laissez fair, which was favourable for the big businesses, and made it so that the power status of the central banking system was limited. There was only 3 principal ways in which the Federal Reserve Board would be able to intervene with the Stock Market; Sale of government securities, raising interest rates and moral leadership.
Another contributing factor, which accounts for the Great Depression is the Problems faced in Europe, with the outstanding debt payments. During World War One, American had lent out money to European countries to help finance for the War, in hope that it would be repaid at a shorter period of time. However this seemed unlikely from happening, as most European countries were still suffering from the aftermath of the war and the economic depression it had caused and the situation became even worse for Europe, as the Prohibitive tariffs on goods meant that it was difficult for European countries to export their manufactured goods in large quantities to the USA. There this situation made it difficult for earning the money required for repaying back the necessary loans to the USA. “The failure of Europe to fully recover from the war…limited the foreign markets that could be tapped”, this is a quote taken from historian David J Goldberg
In addition to the loans that were to be paid by the victorious European countries of the war, and the reparations that were to be paid by Germany, under the Dawes Plan and the Young Plan the USA continued to lend out money to Germany, which would help boost the German economy again and the payment of reparations. Whilst Germany was in desperate need of the loans from the USA, it could be considered that to extent USA experienced a downfall in their economy from loaning out money. As Germany was lent money from the USA, this money was then repaid to Britain and France as reparations, which was then again repaid back to America from loan payments, so in sense America was paying itself back with its own money, and never really received the payments it had hoped for.
The extension of repayments is significant enough to reflect that it was insufficient to continue lending money to European countries.
With the Young Plan and the Dawes Plan becoming further scaled down, the German reparations too were reduced meaning a reduction in the debts that were to be paid back to America. America even invested their money into European ventures, especially Germany, in hope of receiving repayment loans, however this appose of action too failed.
Another problem that seemed to trouble America and account for the Great Depression of the early 1930s was the Government policies that had been introduced during the 1920s in order to encourage prosperity. The introduction of policies such as High Tariffs were introduced in thought of strengthening the American Economy, as the Fordney McCumber Act of 1922, places tariffs on foreign imported goods, therefore meaning that goods were cheaper to buy for Americans. However whilst roaming with the thought that the High Tariffs act was provided beneficial for the American Economy, it concluded to have its weaknesses in the economy. The high tariffs act had placed affects on some certain industries, which were instead ceased to grow, or in some cases some became out of business. In addition whilst the high tariffs were placed on food imports, foreign countries retaliated by introducing similar tariffs on American food, therefore meaning that high tariffs made it difficult to allow farmers to export their surpluses. The government policy of few regulations meant that a business would be able to continue to run as it saw was best to do so, so therefore laws such as fixed pricing was instead ignored, and if the government chose to get involved, they would be unable to do so effectively as the business would win in an appeal. This contributes towards the Government policies that hindered the Great Depression due to the lack of organisation that was involved within businesses. Tax reductions meant that there was less money going into the government from people, however the Tax reductions were only effective towards the wealthy classes, unlike to the people who were too poor to have paid taxes in the first place.