The Impact of the Crash on the Economy

• Share prices continued to fall for three years

• Speculators and investors lost their money

• Banks called in their loans

• Speculators were unable to pay back their loans

• They lost all their savings and often their businesses and homes too

• And banks went out of business as speculators who had borrowed money could not afford to pay it back

• By 1939 11,000 banks out of a total of 25,000 had been forced to close

• The biggest bank to fail was the Bank of the United States in New York which went bankrupt in December 1930 and which had over 400,000 depositors

• And when the Crash affected European banks it had a knock-on effect on the American banks who had lent money to Europe

• Innocent people with savings in these banks lost their money

• People no longer trusted banks and they began to withdraw their savings

• Farmers with mortgages or loans were evicted from their farms as banks tried to get their money backs

• Industrial production fell by 45% between 1929 and 1933

• Thousands of companies went out of business because their share value was worthless; others because they couldn’t get loans to keep going

• The economy struggled to adjust to the reduction in business

• Businesses cut production

• Wages were reduced and unemployment increased

• Unemployment quickly rose to 4.3 million and eventually 12-14 million, a quarter of the workforce

• As a consequence, economic activity reduced further and more businesses struggled as people weren’t spending money

• Fewer and fewer people could afford to buy goods

• Business confidence collapsed

• Any thought of business expansion was abandoned

• As the effects spread around the world, international trade reduced drastically too

• The stock market crash had produced an economic disaster