Economy in Danger The Stock Market Crash of 1929

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Economy in Danger The Stock Market Crash of 1929 Powered By Docstoc
					The Stock Market Crash of 1929
 and the beginning of the Great
•   Using your homework from last night…
    1. What were some signs that the economy of
       the late 1920s was healthy?

    2. What were some economic warning signs
       that the economy was heading for a major
                       “Blue Skies”
• Wages Up 40% Since 1914!

• Welfare Capitalism
   – Employers actually compete over employees!
       • Offer paid vacations, health plans, recreational programs, etc.

• Inflated Stock Prices
   – 1925: Stock Values at $27 Billion
   – Oct 1929: Stock Values at $87 Billion
                       Warning Signs
1.       Uneven Distribution of Wealth
     •     Rich get richer
           •   .1% of population = 34% of county’s savings
           •   71% of people at or below the poverty level ($2,500 a year).
2.       Personal Debt
     •     More and more Americans buy items on credit, become in
3.       Stock Market Speculation
     •     Speculation = attempting to predict stock prices
     •     Buying “On Margin” = using credit to buy stocks
4.       Over-productivity
     •     Factories were producing goods faster than Americans could
           consume them.
     •     New housing starts down 25% in 1928.
5.       Trouble for Farmers
     •     Because of falling crop prices, many farms go bankrupt
• An Omen
   – In Sept., 1929, The Dow
     Jones stopped its upward
     climb at 398 points and
     started to fall.
       • Some shareholders sold
       • Some banks called back
         loans, others kept lending.
• “Black Tuesday”
   – 16.4 million shares of stock
     were sold back to brokers.
   – By early November, 1929,
     The Dow Jones was down
     to 198 points.
The Business Cycle

               Ripple Effects of the Crash
Early on, only about 4 million out of the nation’s population of 120 million lost everything due to the crash. Before
    too long, however, the effects of the crash began to ripple through the nation’s economy…
•   Risky Loans
      – Banks loaned money to many investors and high risk businesses. As stock prices fell, both
        were unable to repay their loans.
•   Consumer Borrowing
      – Consumers had borrowed money during the 1920s to pay for goods through “installment
        plans.” When banks called in these loans, consumers couldn’t pay for them.
•   Bank Runs
      – Fearful that banks would run out of money, people rushed to make withdrawals from their
        accounts. To repay money, banks had to call in loans. Many consumers and businesses
        could not afford to repay loans.
•   Bank Failures
      – Combination of bank runs and consumers/businesses unable to repay loans resulted in
        banks closing their doors.
•   Savings
      – Because of bank runs, 9 million savings accounts had been wiped out by 1933.
•   Cuts in Production
      – Businesses could not borrow money to produce more goods. People could not afford
        goods, so cuts were made in production.
•   Rising Unemployment
      – As businesses cut back on production, they laid off workers and unemployment grew.
        Characteristics of the Great
• Great Depression
  – Great Crash resulted in largest economic
    downturn in history. 1929 – 1941
• Effect on Urban Workers
  – Factories began to close.
  – Small businesses and restaurants feel
    effects of factory workers being
     • By 1932, 25% unemployment!
• Effect on Farmers
  – Urban workers unable to afford farm goods.
    Farm prices fall.
          Effect on the World
• By 1930s, international trade
  had made many countries
  dependent on USA.
  – Many countries depend on USA
    as a market for their goods.
  – Many countries buy American
  – Many countries rely on USA as a
    creditor to offer them loans.

   US Depression = Global Depression

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