Presentation on theme: "The Causes of the Great Depression"— Presentation transcript:
1 The Causes of the Great Depression * The Bull Market and the “Strong Economy” of the 1920s ** The Great Crash and Black Tuesday ** The Roots and Long-Term Causes of the Depression *
2 Great Depression Fun Facts * At its highest point during the Great Depression, unemployment reached 25% (1933)* The Great Depression began in 1929 and ended in 1941 as the U.S. prepared to enter WWII* Social Security, a program that continues to this day, was introduced by FDR during the Great Depression (The New Deal)* The “Roaring Twenties” weren’t roaring for everyone. By 1929, 1% of Americans controlled 40% of the wealth in this country (this would become a HUGE problem!)* The Federal Deposit Insurance Corporation (FDIC) was formed in 1934 to insure deposits in banks and restore customers’ faith in the American banking system (security and relief)* The Dust Bowl years spanned , when a million acres of farmland across the Plains became worthless due to severe drought and over-farming* After the stock market crash in 1929, it took 27 years to reach pre-crash levels* In 1939, the unemployment rate in America had dropped from a high of 25% to 15%* Tuesday, October 29, 1929 is known as “Black Tuesday” because of the plunge the stock market took, and it largely symbolizes the start of the Great Depression* By 1933, more than 11,000 of the nation’s 25,000 American banks had shuttered, victims of the Great Depression* “Hoovervilles” were the catchphrase for the shantytowns that cropped up across the United States, as homeless Americans improvised with scraps, abandoned cars, and packing crates
3 The Presidential Election of 1928 * Herbert Hoover (R)* Al Smith (D)Herbert Hoover was nominated as the Republican candidate, as incumbent President Calvin Coolidge chose not to run for a second full term. Democrat Al Smith was pitted against Hoover. Hoover and Smith had been widely known as potential presidential candidates long before the campaign of 1928, and both were generally regarded as of outstanding leadership quite apart from the office of president. Seldom has this been the case of both contenders in an election. As each candidate was a newcomer to the presidential race, each presented in his person and in his record appeals of unknown potency to widely distributed elements in the population. However, each candidate faced serious discontent within his party membership, and neither had the wholehearted support of the party organization…In the end, the Republicans were identified with the booming economy of the 1920s, whereas Smith, a Roman Catholic, suffered politically from Anti-Catholic prejudice, his anti-prohibitionist stance, and the legacy of corruption of Tammany Hall, with which he was associated. Hoover won a landslide victory bolstered even by wins in Democratic strongholds such as Texas, Florida and Virginia, leaving Georgia as the last state not won by a Republican candidate, which happened only in 1964.
4 The Bull Market and the “Strong Economy” of the 1920s Definition of 'Bull Market'A financial market of a group of securities in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.'Bull Market'Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue. It's difficult to predict consistently when the trends in the market will change. Part of the difficulty is that psychological effects and speculation may sometimes play a large role in the markets… The use of "bull" and "bear" to describe markets comes from the way the animals attack their opponents. A bull thrusts its horns up into the air while a bear swipes its paws down. These actions are metaphors for the movement of a market. If the trend is up, it's a bull market. If the trend is down, it's a bear market…* Prolonged bull market encouraged people to invest in stock! – STRONG economy!* Peak of stock market is in August 1929
5 The Bull Market and the “Strong Economy” of the 1920s The Dow Jones Industrial Average is simply the average value of 30 large, industrial stocks. Big companies like General Motors, Goodyear, IBM and Exxon are the kinds of companies that make up this index. The thing to understand is that the Dow Jones Industrial Average is nothing magic – someone has chosen 30 companies and averaged their values together by following a specific formula. That's all it is.There are all sorts of averages out there. The S&P 500 is the average value of 500 different large companies. The Russel 2000 tracks the average of 2,000 smaller companies. And there are others.What these averages tell you is the general health of stock prices as a whole. If the economy is "doing well," then the prices of stocks as a group tend to rise. If it is "doing poorly," prices as a group tend to fall. The averages show you these tendencies in the market as a whole. If a specific stock is going down while the market as a whole is going up, that tells you something. Or if a stock is rising, but is rising faster or slower than the market as a whole, that tells you something as well.* What is the Dow Jones Industrial Average? (the average value of 30 large, industrial stocks) – indicator of the stock market!* If the DJIA is going up, then the stock market is doing well; if the DJIA is going down, then the stock market is not doing well *
6 What was the result of this? The Bull Market and the “Strong Economy” of the 1920s* Speculation and buying stocks “on margin” (buying stocks on margin – 10% necessary – plus speculation led to falsely high stocks)* Example: with $1,000 an individual could buy $10,000 worth of stock – the other $9,000 became a loan to the stockbroker… BUT, no worries! (yeah, right)* IF price of stock rose, investor made a profit (value of stock to $11,000 – investor made a $1,000 profit)* IF price of stock fell, the stock broker could make a margin call (call for repayment of loan all at once)Speculation And Overleverage In The Great DepressionWith only loose stock market regulations in place before the Great Depression, investors were able speculate wildly, buying stocks on margin, needing only 10% of the price of a stock to be able to complete the purchase.Rampant speculation led to falsely high stock prices, and when the stock market began to tumble in the months leading up to the October 1929 crash, speculative investors couldn’t make their margin calls, and a massive sell-off began. While the great rise in the stock market (from 181 points in early 1928 to 381 points in September 1929) was fueled by optimism and false hope, the plunge was flamed by stark fear.What was the result of this?* sensitivity to price change in the stock market; as long as prices were rising, everything was good, if prices fells, the system fell apart *
7 The Bull Market and the “Strong Economy” of the 1920s * False sense of prosperity in the “Roaring Twenties” (wide-gap between the rich and poor – 60% of population below poverty level; 1% owned 40% of nation’s wealth)* Over-production and under-consumption (wages for unskilled workers barely rose during the 1920s – so, the BUBBLE industries were being created – consumption could keep up with production only for a short period of time…)False Sense Of Prosperity Before The Great DepressionThe 1920s, known as “The Roaring Twenties” marked a time when America was over-dependent on production, automobiles were the leading industry, and there was a great disparity between rich and poor. More than 60% of the population was living below poverty levels, while a mere 5% of the wealthiest people in America accounted for 33% of the income, and the richest 1% owned 40% of the nation’s wealth. This uneven distribution of wealth was mirrored in the unequal distribution of riches between industry and agriculture.Global Crisis And The Great DepressionWhile America prospered during the 1920s, most of Europe, still reeling from the devastation of World War I, fell into economic decline. America soon became the world’s banker, and as Europe started defaulting on loans and buying less American products, the Great Depression spread.
8 The Great Crash and Black Thursday *By early October, 1929, the NYSE stock market prices had begun to slowly fluctuate (August was the high point of the market)* Monday, Oct. 21, 1929 – Stockbrokers began to make large-scale margin calls (by that Thursday, Oct. 24, the NYSE had lost 11% of it’s market)* Panic set in, and on October 24, Black Thursday, a record 12,894,650 shares were traded!Stock prices began to decline in September and early October 1929, and on October 18 the fall began. Panic set in, and on October 24, Black Thursday, a record 12,894,650 shares were traded.
9 The Great Crash and Black Tuesday * Investment companies and leading bankers attempted to stabilize the market by buying up blocks of stock, producing a moderate rally on Friday (on Monday, the market went into free fall)* Black Tuesday (October 29), stock prices collapsed completely and 16,410,030 shares were traded on the NYSE in a single day! ($10-$15 billion lost)*By mid-November, $30 billion had been lost! (wiped out thousands of investors, companies – more money lost than all wages earned in 1929)Investment companies and leading bankers attempted to stabilize the market by buying up great blocks of stock, producing a moderate rally on Friday. On Monday, however, the storm broke anew, and the market went into free fall. Black Monday was followed by Black Tuesday (October 29), in which stock prices collapsed completely and 16,410,030 shares were traded on the New York Stock Exchange in a single day. Billions of dollars were lost, wiping out thousands of investors, and stock tickers ran hours behind because the machinery could not handle the tremendous volume of trading…1929 Stock Market Crash and the Great DepressionAfter October 29, 1929, stock prices had nowhere to go but up, so there was considerable recovery during succeeding weeks. Overall, however, prices continued to drop as the United States slumped into the Great Depression, and by 1932 stocks were worth only about 20 percent of their value in the summer of The stock market crash of 1929 was not the sole cause of the Great Depression, but it did act to accelerate the global economic collapse of which it was also a symptom. By 1933, nearly half of America's banks had failed, and unemployment was approaching 15 million people, or 30 percent of the workforce.
10 Banks Begin to Close and Bank Runs What was the result of this? * The History Channel and Bank Runs* Banks throughout the country had loaned money to potential investors – when stock market crashed thousands of people lost ability to pay debts (not THAT bad, but…)*Banks also began to invest depositor's money into the stock market (uh-oh)What was the result of this?* When stock values collapsed, banks lost money on investments and speculators defaulted on their loans – banks stopped lending money, making less credit available, send economy into recession and banks begin to close due to their inability to absorb loses *
12 The Roots and Long-Term Causes of the Great Depression 2.) Over-production and under-consumption3.) Low Interest Rates (Federal Reserve)5.) Stock Market speculation4.) High Tariffs (Hawley-Smoot Tariff)… meant a loss of export sales!1.) Uneven distribution of wealth (failing DEMAND)… BUBBLE industries!