The+Roaring+Twenties+Stock+Bubble

=**The Roaring Twenties Stock Bubble**=

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The Roaring Twenties Bubble first began after the end of World War I and popped, or ended, on Black Friday, October 19, 1929.

Fundamental Causes
In 1929, the infallible illusion of an American stock market that could not, and would not ever fail, shattered. Much of the stock market was driven by the illogical sentiment of the American people, and in the 1920s, they felt untouchable. Americans were optimistic because of the was victory in World War One, which jump started the powerful machine of American industry. This high public opinion, as well as excessive speculation and unrealistic expectations, caused the bubble. Additionally, investors had become accustomed to continual stock increases, and began buying stocks "on margin," which refers to paying for 10 to 20% of a stock and then paying for the rest at a later time. However, as stocks suddenly began turning down, peoples investments failed, and they could no longer afford to pay for their remaining stocks. This caused stock prices to fall even farther, scaring American investors who put much of their savings into an economy they believed would never fail. They then quickly sold their shares for anything they could get, halting investments. Additionally, with the consumer loss of capital stocks payments were defaulted on, causing companies to lose the money they thought they had. Because companies could no longer operate successfully, they American industry and GDP dropped dramatically, thus fulling popping the bubble.

Pre-Crash Economic Climate
Americans in the 1920s happily rode the roaring wave of new jazz, lavish fashion, and unprecedented wealth, that defined the decade. Quality of a life was at an all time high as World War I caused industrial production to explode. This increased productivity continued well into the twenties, thanks to America's huge reserves of raw materials and high tariffs on foreign goods. In addition, Americans enjoyed a higher standard of living at this time than any generation before them; it seemed that everyone was capturing their piece of the the American Dream. Food was plentiful and cheap thanks to the vast quantity produced on American farms. More and more people bought their own houses through mortgages. They filled them with all kinds of consumer goods and parked their new cars in the garage. But the "Roaring Twenties" was also the great age of popular entertainment. In the theatres and "speakeasies" (secret, illegal bars), people were entertained by "vaudeville" acts (music hall), singers and jazz and dance bands. The period is often called the "Jazz Age". Radio stations mushroomed all over America, with the programs being paid for through advertising. Furthermore, there was an enormous increase in consumer good production (cars, refrigerators, radios, cookers, telephones etc), prices levels went down, and wages went up. Ordinary people were encouraged through advertising to buy these goods and many could now afford what had been luxuries before the war. One reason was that they earned slightly higher wages because of the boom. Another reason was that the growth of hire purchase meant that people could spread the cost over months and even years. But the main reason was that goods had become cheaper, e.g. 1908 the average cost of a car was $850 1925 the average cost of a car was $290.This was because of "mass production" methods used to produce many consumer goods. Assembly lines were built in factories and each worker concentrated on one small job only. The most famous example of this method was Henry Ford's factory which was fully automated (many of the jobs done by machines).

Effects of Crash
The Stock Market Crash of 1929 catalyzed the Great Depression that touched every aspect of the national economy. It produced a downward spiral that hurt every segment of the population. The stock market crash caused 744 banks to fail within the first ten months, which caused many businesses to fail, which caused unemployment to skyrocket from 5% in 1929 to 25% in 1931, which caused consumers to have less purchasing power, which forced existing businesses to lower their prices, and so forth. It took years to break this vicious cycle. Furthermore, factories had begun to overproduce consumer goods, but demand for those goods didn’t increase at the same rate. Prices of those goods began to fall, but once the stock market crashed, few people could afford to purchase goods. A similar situation happened with farm crops as farmers planted more wheat than was demanded on the market. Moreover, thanks to over speculation the U.S. economy collapsed and took ten years to recover. This notion makes the Roaring Twenties Bubble and the Great Depression the worst economic failure in United States history .

Primary Causes and Factors
Credit was too easily available as the stock bubble inflated. Bankers would loan out money to anyone, with no history of financial responsibility and no collateral, in order to invest, as that was considered both a responsible financial decision and a sure investment. As stocks began to plummet, however, individuals lost their investments in stocks, banks went bankrupt as borrowers defaulted, and corporations went bankrupt upon not receiving the money they expected in stocks. After the initial stock crash, though, the remaining banks became extremely cautious with loans, stalling the economy as no people and no firms could get money to spend. Credit shifted from too easy to acquire to too hard to come by.

The Role of the Government
The Coolidge administration extended free trade, created new anti-inflation measures, and relaxed some anti-trust laws. This allowed for greater economic growth and increased wealth. Because of the increased wealth, many people began investing in the stock market. People heavily invested in the market and they borrowed money to invest on stocks. The government and Federal Reserve did not impose any regulations on stock trading and people were not limited to how much stock they could purchase. This resulted in overspeculation which

Unique Aspects of the 1929 Stock Crash
The 1920s Stock Bubble was unique in that it was the first time that stocks were the cause of a major economic downturn. Stocks were heavily traded during the 1920s as a result of increased wealth and loose government regulation. The lack of regulation allowed people to trade stocks without limits. People were borrowing money from banks to invest in stocks and could not pay back their loans. This heavy investment in stocks led to overspeculation and made stocks seem more valuable than they actually were. People had to borrow a lot of money to make even a little profit, but most of the time, they couldn’t. When the stock prices went down, people lost their money and the inability of people to pay back loans eventually led to the crash.

Response and Reaction
 After the bubble burst, the government primarily concentrated on revitalizing the economy and passing financial regulations to ensure a stock bubble would never happened again. Congress passed the Glass-Steagall Act, which created a separation between investment banks and commercial banks. Furthermore, the government created the Securities and Exchange Commission (SEC) on October 1, 1934 to regulate stocks, bonds, and other commissions. The government also created the Federal Deposit Insurance Corporation to insure consumers’ deposits were in FDIC-enrolled financial institutions, and the Federal Crop Insurance Corporation (FCIC) to insure crops planted by farmers. Due to these programs and act, the United States never encountered an economic collapse of such proportions again.