Politics and Market Speculation(TOK)

PoliticsThe new freedom of economy and lifestyle

allowed politicians to focus on social and cultural issues

People wanted to end labor problems and racial strife, they wanted less immigration, conservative politics, and less government interference

Elections- 1924 republicans won by a landslide and again in 1928, republicans were given credit for the economic boom

Presidents in the 1920sWoodrow Wilson (1913-1921)Warren G. Harding (1921-1923)Calvin Coolidge (1923-1929)Herbert Hoover (1929-1933)

Key Government Politics April 29, 1926- the United States and France reached an

agreement about World War I payments March 28, 1929- President Hoover created the SOCAL Act,

allowing 16 oil wells to be opened in Bahrain June 15 1929-President Hoover passes the Agricultural

Marketing Act of 1929 (TOK) establishing the Federal Farm Board◦ Intended to stop the downward spiral of crop prices by buying crop

surpluses and by lending money to farm organizations◦ Money was loaned out to the farmers in order to buy seed and food

for their livestock ◦ The Federal Farm Board's purchase of surplus could not keep up

with the production because farmers realized that they could just sell the government their crops, they boosted production

Social issues• Prohibition- liberals and non-obeying leaders• Isolationism- desire to keep other countries distant, people had

an xenophobic fear especially in rural where the KKK was active

• Communism- people were hostile especially after the Red Scare

• Ku Klux Klan- white supremacy and nationalism, no immigration

The Dawes Plan Origin- a treaty enacted in

September of 1924 Purpose- to allow the Triple

Entente to collect war reparation debts from Germany (TOK)

Value- gives factual documentation as to what the world was expecting from Germany as far as war reparations

Limitation- it was written without concern to Germany's livelihood and therefore fails to encapsulate the actual situation in Germany

Proposed by the Dawes Committee in 1924Relied on money lent to Germany by a

consortium of American investment bankersWent into effect in September 1924In the mid-twenties German business rebound,

Germany was able to make prompt paymentsSince this plan solved an international crisis,

Dawes won a Nobel Peace Prize in 1925Unfortunately the plan did not work and was

replaced, in 1929, by the Young PlanAllies purposely set payments at to high (TOK)

Background Germany was required to pay twenty billion gold marks, then in 1921

told to pay 132 billion gold marks 1923- Germany defaulted on their ability to give more coal, timber, and

steel French and Belgian troops went into Germany to occupy the Ruhr River Valley,

This infuriated Germans, they tried to resist, which led to inflation Hyper inflation in Germany

Allied occupation of the Ruhr Crazy amount of demanded money Just got out of a war

Main Points1. The Ruhr area would be

evacuated by Allied troops2. Reparation payments begin at

one billion for the first year, increasing annually to two and a half billion after five years

3. The Reichsbank would be recognized under Allied supervision

4. Sources for reparation money would include transportation, excise, and custom taxes

5. The total loan from the Unites states would equal 800 million dollars

Young PlanProgram for settling

German reparation debts

Written in 1929 and enacted at second Hague Conference in January of 1930

Committee head- Owen D Young

Reduced payments to 112 billion gold marks and divided annual payment into two1. Unconditional part- one third of the sum2. Postpone able part- two thirds that, if not paid, would

gain interest and be and financed by American investment banks

Called for international bank of settlements to handle reparationsThe Bank for International Settlements was established

International organization of central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks" (www.bis.org)

Since it is an international institution, it is not accountable to any single national government

And then…The Crash of 1929 occurred and the

American banking system was forced to recall their money from Europe and cancel credits which had made the Young Plan possible

The downfall in imports and exports affected the entire world1933- two thirds of all world trade was gone

German unemployment increased to33.7 percent

Rise of Materialism Materialism- tendency to consider material possessions and

physical comfort as more important than other values 1920s- culture grew from the enormous material abundance Increased wages for middle class Fabulous profits for investors Machines transform conditions of everyday life

Culture became a commodityRadio and television become huge-

everyone could hear and see the same things, this led to advertising as crucial industry, which led to a mass demand for products of mass consumption

People saw no need to save, companies allowed payment in installment plansBorrowers overextend

Market LeverageMargin buying- the buying of securities with cash

borrowed from a broker using other securities as collateral

Net value- the difference between the value of the securities and the loan equals the amount of one’s cash used

Margin requirement was incredibly looseMany investors received margin calls, they had to deliver

more money to their brokers or their shares would be soldPeople could not afford to pay, so their shares were sold which

lead to more market declines, which lead to more margin calls (TOK)

Role of Income Distribution“The distribution of income lies at the heart of

an enduring issue in political economy—the extent to which government should redistribute income from those with more income to those with less.”

Should the government redistribute income? (TOK)

No one person distributes income, it is done by decisions in people make in work, savings, and investment

Most of the money in the United States was distributed between a few really rich people, this unbalance of wealth led to an unstable economyIncreased manufacturing output

Production costs quickly falling, wages slowly rising, and prices remaining constant- profit went to the bosses

VocabularyDow Jones Industrial Average- indicator of

stock market prices, based on 30 blue-chip stocks (stock market index)

Point system- weighted average price of 30 blue-chip stocks

Speculation- practice of engaging in risky finance transactions in an attempt to profit from short or medium-term fluctuations in the mark value of a tradable good

Market value- whatever people will pay

Basics of the Stock MarketCompanies sell stocks in order to raise moneyWhen one owns a share of stock, they have claim to the

companyAs company earnings go up, investors become willing to pay

more for a shareAs the economy grows, cooperate earnings grow, and stock

prices go upThe stock market grows at an average of ten percent per yearThe stock market is a long-term investment (TOK)People liked the stock market because if a company failed,

one person, founder, investor, or stockholder wouldn’t loose it all.

Crash of 1929 Beginning in late October, most devastating in American history

◦ Signified the beginning of the ten year Great Depression (TOK) The Great Depression affected all Western industrialized countries

(TOK) Post war optimism brought floods of people moving from rural areas

into the city in the hope to find a more prosperous life in growing expansion of industrial sector Neglect in the agriculture industry, financial despair among farmers (TOK)

People thought the stock market would always go up Steel product, construction, and car sales were down Consumers were building enormous debt because credit was so easy Market had been on a nine year run, the Dow increased by ten times

reaching a peak of 381.17 on September third September 18th- share prices in the New York Stock Exchange fell The Market was unstable, switching between ridiculous amounts of

selling and trading to rising prices and recovery

“Black Days”October 24- Black

Thursday, the stock market lost eleven percent of its valueWall Street Bankers meet to

find a solution Richard Whitney acted on

their behalfOctober 28- Black

Monday, more investors wanted out (TOK), lead to another slide and a record loss of thirteen percent

October 29- Black Tuesday, sixteen million shares were traded and the Dow went down twelve percent moreWilliam C. Durant, the

Rockefeller family, and other financial giants bought enormous amounts of stock to demonstrate their confidence in the stock market

The market lost over thirty billion dollars in two days

October 30, the stock market regained twelve percentNovember 13, the stock market hit interim bottomThe stock market would not return to the September

third peak until November twenty-third, 1954

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