The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s?...
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The Beginning of the
GREAT DEPRESSION
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1. What was the general economic trend of the
1920’s?• 1920’s a decade of extreme economic growth
• Industries producing more consumer goods with more efficiently
• Unemployment: averaged 3%
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What is GNP?Sum total of all final goods and
services produced within a country during a specific time period (year).
Calculated by adding:Total wages and salaries +Profits of incorporated and unincorporated businesses +Rental incomes +Interest incomes = GNP
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3. What industry drove the expansion of the American economy in the 1920’s?
• 1919: 6.7 million cars in U.S.• 1929: 27 million cars in U.S. • 1929: 4 out of 5 American
families owned a car• 12.7% of American
manufacturing (1929)• 1 in 12 workers employed in
Auto industry
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Automobiles in the 1920’s
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The Stock Market• What is a
Stock?• A portion of ownership in a corporation• Increases in value based on success of business
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Many Americans buying on
CREDIT• 1920’s: Many Americans used credit buy consumer goods (cars, electronics)
• End of 1920’s: Credit was “drying up”– Americans had so much debt that
they couldn’t afford to continue purchasing
– Consumer sales decreased . . . Leading to decrease in profits of companies
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What is Buying on Margin?
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What did Roger Babson warn in September 1929?
"Sooner or later a crash is coming, and it may be terrific."
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3 Reasons for the “Crash”
• Inequality of wealth distribution• 70% made less than $2,000 per year. • Top 5% controlled 30% of economic wealth.
• Production overtook consumption• Businesses producing more than consumers
demanding (production efficiency/credit limits)• Businesses start reporting decreased profits
• Boom & Bust Cycle– “Boom” (increased buying of stocks) followed by
“Bust” (rapid decrease in value of stocks)
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“Boom to Bust”Stock Market
“Bubble”• Shares of stock rising because of so many investing in stock market (high demand) . . . NOT based on the actual earnings of the stock/business.
• Stock prices became artificially high (“bubble”)
• As corporations reported lower earnings, investors start cashing in stocks.
• Other investors panic & try to sell . . .
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Selling leads to…
THE STOCK MARKET CRASH
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“BLACK THURSDAY”Thursday October 24,
1929• Investors begin selling stocks leading to plummeting (falling) price of stocks.
• 12.9 shares of stock sold• Panic stops when group of
6 bankers “pool” their money & buy stocks.
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“Black Thursday” leads to anxiety and fear in
Americans
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Stocks stabilize on Friday & Saturday
Monday October 28, 1929• More investors start to pull out of
stock market. Market decreases 13%
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“Black Tuesday” Tuesday October 29, 1929
• Investors “panic” that stock prices are decreasing…
• Investors sell over 16 million shares of stock . . . Stock Market decreases another 12%
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Video on the Crash of 1929
http://www.youtube.com/watch?v=iLnDPntfNFw
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The
Great Depression
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Causes of the Great Depression
1. Stock Market Crash of 1929 • $40 Billion dollars in stockholder money
gone• Led to decrease in confidence. • Investors & businesses less likely to invest
• Banks had invested money in the stock market & lost it
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Causes of the Great Depression
2. Lack of diversification in the economy
• 1920’s prosperity depended largely on construction & automobile industry
• Late 1920’s: construction & auto industries declining
• Construction: 1926: $11 Billion 1929: $9 Billion
• Automobiles: Decreases 33%
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3. Extremely unequal distribution of wealth leads to overproduction.• Wages didn’t rise in proportion to manufacturing
productivity (Manufacturing increases/consumption decreases)
• 71% of Americans live on below $2,500 per year– Americans too poor to buy the goods
American industry is producing
Americans stop purchasing Businesses decrease production Workers eliminated Raising unemployment
Causes of the Great Depression
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4. Credit & Investment• Farmers heavily in debt to banks for land
& equipment– Crop prices decrease (86%) Farmers unable
to repay loans Farms foreclosed . . . Unemployed farmers
Causes of the Great Depression
• Investors who had “bought on margin”• Lenders “call in” loans . . . Investors go broke and default or lost investments
• Banks investing deposits in the stock market• Loose money. Constrict credit. Bank runs. Bank
failures
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5. Destabilizing of American/European Trade
• After WWI, Europe reliant on American agriculture & manufacturing. Part of reason for U.S. economic growth of 20’s.
• European demand for American goods declines in late 1920’s. – European manufacturing & agriculture rebuilding – European economic troubles due to post-War debt
Causes of the Great Depression
• Hawley-Smoot Tariff (1930)- American protective tariff against foreign goods.- 33 foreign governments react by raising tariffs on
U.S.- Fewer exports fewer goods sold decreased
production Decreased profits Rising unemployment
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The
Effects of the
GREAT DEPRESSIO
N
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What happened to many banks?
• Many banks “speculated” in the Stock Market in 1920’s (Invest w/depositors $)
• After the Crash, some banks closed because they lost depositors savings in the 1929 Stock Market Crash.• Fear & uncertainty leads to . . .
BANK RUNS
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What is a Bank Run?When a large number of people withdraw their money from a bank at the same time out of fear the bank will “go under”
Bank Run:
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• 1929 – 1933: 9,000 banks close• Depositors lost $2.5 Billion• Banks stopped lending money & calling in loans
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What happened to farms?• Many farmers in debt to
banks for land & equipment• Price of agricultural goods
decreases Decreased income for farmers
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• Thousands of farmers unable to make payments to banks for land/equipment loans• 1933: 364,000 farms foreclosed on
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The Dust BowlTo make matters worse . . .
• Irresponsible farming practices• Drought• Wind storms lead to dust storms
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What happened to employment?
• As GDP fell, unemployment increased
• 1930: 4.2 million unemployed (9%)• 1933:12.6 million unemployed (25%)
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What was the unemployment rate in Harlem in 1932?
50%
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What was life like for the unemployed?
“They hung around street corners and in groups. They gave each other solace. They were loath to go home because the were indicated, as if it were their fault for being unemployed. A jobless man was a lazy good-for-nothing. The women punished the men for not bringing home the bacon, by withholding themselves . . . The men suffered from depression . . . They were ashamed of themselves . . . They avoided home.” – Nathan Ackerman (Psychiatrist)
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