Tupac-Amaru
12th February 2005, 15:37
Originally posted by
[email protected] 12 2005, 04:57 AM
Does a stock market have to exist in order for a capitalist economy to work? what would happen if the stock market did not exist? I really dont get anything about the stock market at all.
Yea, it kinda does. The stock market is simply a market where a company can sell its socks, when a company sell its stocks its basicly selling part of the company, the money gained from selling part of the company can be used to expand the company...and the share holders ( the people who own the stock) get a certain amount of profit if the company does well.
What happened with the great deppression is that interest rates at the banks were expremely low, therefore people took out loans to buy stocks on wall street, but this investment acctualy didnt exist because the money used came from banks loans. The excessive speculation (buying stocks) in the late 1920's kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the maldistribution of wealth, caused the American economy to capsize.This speculation and the resulting stock market crashes acted as a trigger to the already unstable U.S. economy. Due to the maldistribution of wealth, the economy of the 1920's was one very much dependent upon confidence. The market crashes undermined this confidence. The rich stopped spending on luxury items, and slowed investments. The middle-class and poor stopped buying things with installment credit for fear of loosing their jobs, and not being able to pay the interest. As a result industrial production fell by more than 9% between the market crashes in October and December 1929. As a result jobs were lost, and soon people starting defaulting on their interest payment. Radios and cars bought with installment credit had to be returned. All of the sudden warehouses were piling up with inventory. The thriving industries that had been connected with the automobile and radio industries started falling apart. Without a car people did not need fuel or tires; without a radio people had less need for electricity. On the international scene, the rich had practically stopped lending money to foreign countries. With such tremendous profits to be made in the stock market nobody wanted to make low interest loans. To protect the nation's businesses the U.S. imposed higher trade barriers (Hawley-Smoot Tariff of 1930). Foreigners stopped buying American products. More jobs were lost, more stores were closed, more banks went under, and more factories closed. Unemployment grew to five million in 1930, and up to thirteen million in 1932. The country spiraled quickly into catastrophe.
AND ITS ALL CAPITALISM'S FAULT!!! :angry: