Collapse of Stockmarket
Beginning of the Depression
Unequal Distribution of Income
• Top .1% of population earning equal to bottom 42% of population • Disposable income rose 9% but top 1% disposable income rose 75% • Production per. Worker increased 32% but income only rose 8%
– corporate profits rose 62%
Easy Credit “Buy now pay later”
• 60% of cars, 80% of radios were bought on credit • Telescope the future into the present • Wages went to pay for purchases of the past
Farmers didn’t share in profits
• Food prices fell 72% because of surpluses
– Wheat during WWI sold for $2 bushel by 1920 sold for $.72
• Farmers earned 1/2 the income of average workers • Farmers had huge debt from WWI
Stockmarket
• From 1928 to Sept. 29 Dow rose from $191 to $381 • RCA rose in 1928 from $85 share to $420 • Playing to margin on RCA could profit 3400% • $ 8.5 billion in loan on the market
Collapse caused by Fear
• Margin calls went out many couldn’t cover • Panic selling to protect gains caused more drops • Smart investor bought when market hit it’s lowest
Consequences of Crash
• Rich invested in safer areas • Middle class stopped buying on credit, could lose jobs • Industrial production drops 9% from Oct. to Dec. of 1929 • Unemployment 5million in 1930 up to 13 million in 1932
Downward Economic Spiral
• Durable good ,cars, radios, refigerators had hit point of saturation • Factories had to cut production • Cut expenses by laying off workers • Increase in unemployed workers also cut into consumption
Banking
• When jobs are lost loans can’t be repaid • Bank collects collateral on secured loans • No one want to buy going into debt in ecomically unstable time • Some banks fail, which spurs runs on banks