Rajesh Mudaliyar & Rahul Chaudhary

The Great Depression

1929

SMBA: 7

What makes a Depression Great?

Recession: When your neighbor loses his or her job.

Depression: When you lose your job.

STOCK PRICES RISE THROUGH THE 1920s

Through most of the 1920s, stock prices rose steadily

The Dow reached a high in 1929 of 381 points (300 points higher than 1924)

By 1929, 4 million Americans owned stocks New York Stock Exchange

THE STOCK MARKET

By 1929, many Americans were invested in the Stock Market

The Stock Market had become the most visible symbol of a prosperous American economy

The Dow Jones Industrial Average was the barometer of the Stock Market’s worth

The Dow is a measure based on the price of 30 large firms

SEEDS OF TROUBLE

By the late 1920s, problems with the economy emerged

Speculation: Too many Americans were engaged in speculation – buying stocks & bonds hoping for a quick profit

Margin: Americans were buying “on margin” – paying a small percentage of a stock’s price as a down payment and borrowing the rest

The Stock Market’s bubble was about to break

THE 1929 CRASH

In September the Stock Market had some unusual up & down movements

On October 24, the market took a plunge . . .the worst was yet to come

On October 29, now known as Black Tuesday, the bottom fell out

16.4 million shares were sold that day – prices plummeted

People who had bought on margin (credit) were stuck with huge debts

FINANCIAL COLLAPSE

After the crash, many Americans panicked and withdrew their money from banks

Banks had invested in the Stock Market and lost money

In 1929- 600 banks fail

By 1933 – 11,000 of the 25,000 banks nationwide had collapsed

Bank run 1929, Los Angeles

GNP DROPS, UNEMPLOYMENT SOARS

Between 1928-1932, the U.S. Gross National Product (GNP) – the total output of a nation’s goods & services – fell nearly 50% from $104 billion to $59 billion

90,000 businesses went bankrupt

Unemployment leaped from 3% in 1929 to 25% in 1933

CAUSES OF THE GREAT DEPRESSION

U.S. demand low, despite factories producing more

Farm sector crisis Easy credit Unequal

distribution of income

American Economic Policy with Europe

RURAL LIFE DURING THE DEPRESSION

While the Depression was difficult for everyone, farmers did have one advantage; they could grow food for their families

Thousands of farmers, however, lost their land

Many turned to tenant farming and barely scraped out a living

Between 1929-1932 almost ½ million farmers lost their land

EFFECTS OF DEPRESSION

Suicide rate rose more than 30% between 1928-1932

Alcoholism rose sharply in urban areas

Three times as many people were admitted to state mental hospitals as in normal times

Many people showed great kindness to strangers

Additionally, many people developed habits of savings & thriftiness

Change in Economic Indicator1929-1932

Indicators United States

Great Britain

FranceGerman

y

Industrial production

–46% –23% –24% –41%

Wholesale prices –32% –33% –34% –29%

Foreign trade –70% –60% –54% –61%

Unemployment +607% +129% +214% +232%

HOOVER’S PHILOSOPHY

Hoover was not quick to react to the depression

He believed in “rugged individualism” – the idea that people succeed through their own efforts

People should take care of themselves, not depend on governmental hand-outs

He said people should “pull themselves up by their bootstraps”Hoover believed it was the individuals

job to take care of themselves, not the governments

HOOVER TAKES ACTION: TOO LITTLE TOO LATE

Hoover gradually softened his position on government intervention in the economy

He created the Federal Farm Board to help farmers

He also created the National Credit Organization that helped smaller banks

His Federal Home Loan Bank Act and Reconstruction Finance Corp were two measures enacted to protect people’s homes and businesses

Hoover’s flurry of activity came too late to save the

economy or his job

Impact Of Depression In Indian EconomyThe effect of depression was felt through a sharp decline in agricultural prices and a severe pressure on the balance of payment of the country. It did not affect industrial output considerably or direct employment because the newly adopted policy of protection has given Indian industry a shelter in domestic market and also there was diversion of demand from high priced imports to low priced Indian goods.

Agriculture

Income fell in Agriculture prices not because of output but a fall in prices.

Food crops to Cash crops cultivation.

Restrictions on Cash Flow.

Boycott of foreign goods.

WORLDWIDE EFFECTS

Australia Australia's extreme dependence on

agricultural and industrial exports meant it was one of the hardest-hit countries in the Western world

Falling export demand and commodity prices placed massive downward pressures on wages

Further, unemployment reached a record high of almost 32% in 1932

After 1932, an increase in wool and meat prices led to a gradual recovery

WORLDWIDE EFFECTS(CONT…)

Canada• Harshly impacted by both

the global economic downturn and the Dust Bowl,

• Canadian industrial production had fallen to only 58% of the 1929 level by 1932, the second lowest level in the world after the United States

• Total national income fell to 55% of the 1929 level, again worse than any nation apart from the United States.

Germany Germany's Weimar Republic was

hit hard by the depression, as American loans to help rebuild the German economy stopped.

Unemployment soared, especially in larger cities, and the political system veered toward extremism.

Hitler's Nazi Party came to power in January 1933. In 1934 the economy was still not balanced enough for Germany to work on its own.

Latin America

Because of high levels of United

States investment in Latin

American economies, they were

severely damaged by the

Depression

Chile, Bolivia and Peru were

particularly badly affected

One result of the Depression in

this area was the rise of fascist

movements.

East Asia France

Outbreak of World War II causes US factories flooded with

orders form armaments and munitions

Unemployment decreases and production increase

Depression ends completely by the time the US enters the war in 1941

End to Depression

Countries Depression Began Recovery Began

United States 1929:3 1933:2

Great Britain 1930:1 1932:4

Germany 1928:1 1932:3

France 1930:2 1932:3

Canada 1929:2 1933:2

Italy 1929:3 1933:1

Belgium 1929:3 1932:4

Netherlands 1929:4 1933:2

Sweden 1930:2 1932:3

Denmark 1930:4 1933:2

Japan 1930:1 1932:3

Poland 1929:1 1933:2

India 1929:4 1931:4

Brazil 1928:3 1931:4

South Africa 1930:1 1933:1

What did we learn from the 1929 Crash?

Market can be very unpredictable Investors must not get caught up in

market bubble illusions Market forces alone may be unable to

achieve recovery from economic slump Changes were needed in US economic

structure

The Depression was not a failure of capitalism or markets, but rather a failure of the Federal Reserve.

Monetary policy should maintain price stability – avoid deflation and inflation.

The Fed should respond to financial crises that increase the demand for money or threaten to disrupt the payments system.

Could It Happen Again?

DoesHistory

repeat….?

Thank You