Long-term Weakness in the US Economy During the 1920s

What were the long-term weaknesses in the US economy after the First World War?

By the end of the decade several problems in the economy were becoming apparent including speculation, poverty, overproduction and tariffs.

Why was speculation a long-term weakness in the 1920s American economy?

Speculation was buying shares to sell for a profit, based on the belief that prices would carry on rising. This led to more demands for shares, which inflated their prices artificially.

Why was poverty a long-term weakness in the 1920s American economy?

71% of Americans lived on low incomes in the 1920s, and didn't have the spending power to buy consumer goods. This began to lead to under-consumption, where not enough goods were bought.

Why was overproduction a long-term weakness in the 1920s American economy?

Factories carried on making consumer goods even though the people who could afford them had already bought them. Sales fell and so did prices.

Why were tariffs a long-term weakness in the 1920s American economy?

America put taxes, called tariffs, on imports from other countries to encourage Americans to buy US goods. Other countries retaliated by putting tariffs on US goods, making it hard to sell overseas.

What were the signs of long-term weakness in the 1920s American economy?

In the late 1920s, some financial experts began to recognise the signs that an economic slow-down was on its way.

• ❖ Wage increases were slowing down.
• ❖ Fewer houses were built.
• ❖ The amount of stock in warehouses was starting to rise, showing that sales were slowing down.
• ❖ The number of car sales was dropping.