Presentation on theme: "Throughout the 1920s, Americans had more leisure time than every before thanks to new time-saving appliances, electricity, and cars. The problem? They."— Presentation transcript:
Throughout the 1920s, Americans had more leisure time than every before thanks to new time-saving appliances, electricity, and cars. The problem? They had bought most of it on credit, which is OK as long as you keep making the payments. But what would happen if you lost all your money AND your job at the same time?
And remember, there were a ton of items Americans were buying on credit in the 20s. (They called it the Installment Plan.) Almost everything they owned was bought on credit: house, car, cook stove, record player, radio, spooky glowing crosses. You could even buy clothes on credit sometimes. What if you suddenly can't make the payments?
Americans also had more extra money than ever before. So a lot of people started playing the stock market in the hopes of striking it rich. (Think of it as a modern-day gold rush.) How does the stock market work?
Remember the law of Supply and Demand? When demand for something goes up, so does the value, or price. When more Americans started looking to buy stocks, the demand for stocks went up. What happened to the price of those stocks?
It went up! So you could buy a stock for $10 a share, and, since more and more people wanted to buy stocks, you could turn around and sell it for $15. You just made a $5 profit for really no work.
One bad thing that started to happen was called "Speculation." They bought stocks on Monday, and sold them for a profit on Tuesday. Then, they took the profit they made, and bought more stocks on Wednesday, and made more profit on Thursday. Guess what they did Friday. This rapid buying and selling of stocks made the demand for stocks go up. What happened to the value of those stocks?
Another bad thing that people started doing was called "Margin Buying." They were borrowing money from banks to buy stocks. They were even putting their houses and businesses up for collateral. That's OK as long as the value keeps going up. You can sell your stock and pay off the loan. But what happens if the value suddenly goes down? What if you've used all your cash to buy stocks, and you have loans to pay?
Here's another, REALLY bad thing that was happening: a lot of people were playing it smart. They weren't doing crazy stuff in the stock market. They were putting their money in savings accounts in banks, where they draw interest, or extra money. Nice and safe, right? Not really. Guess what the banks were doing with that money people were putting in the bank:
They were investing it in the stock market! They were using their customers' money to buy stocks! Wanna know a secret? THEY STILL DO!
Why didn't the government see the bad things happening and stop them? Some economists were saying that the train was about to come off the rails, but nobody listened to them much. And you have to remember, the government didn’t get involved in people's everyday lives the way it does today. President Hoover and most of the Congress believed in "Laissez Faire" policies: that meant "hands off." The government didn’t interfere with business. They thought that if the government started passing laws and taxes regulating businesses, the businesses would close and everything would fall apart.
Well, what finally happened? October 24, interest rates on savings accounts went up, so a lot of the really smart stock investors sold their stocks and put their money in savings. When people saw those big wigs selling, they panicked, and thousands of people tried to sell their stocks at the same time. So, if everyone is trying to sell something, and no one wants to buy it, what is the value of the thing?
Demand went WAY down, supply went WAY up, so those stocks that were making people rich on Wednesday, were virtually worthless on Thursday. Wall Street decided to close down for a four day weekend, in the hopes that everyone would calm down and start buying again on Tuesday. But on Tuesday, it just got worse. That day, October 29, is called Black Tuesday. That day, the stock market collapsed, the bottom fell out, and the nation's confidence shattered, as 16.4 million shares of stock were dumped on the market, and no one wanted to buy them.
The next few days, weeks, and months saw the economy collapse like dominoes. Individual investors lost all their money, they owed huge debts for everything they owned, and they couldn't pay them. They rushed to banks to withdraw their savings, but found that the banks had invested their savings in the market, and it was all gone. There was no money in the banks for people to withdraw. Banks began to shut down and lock their doors. In 1929, 300 banks failed. By 1933, 11,000 failed.
And remember that businesses and factories had money in those banks, and when they couldn't get it, they had to close down. They couldn't pay their workers, or buy raw materials, or pay electric bills. Around 90,000 businesses went bankrupt, and 13 million workers lost their jobs. The unemployment rate before the crash was 3%. By 1933, it was over 25 %.
When people couldn't pay their bills, banks foreclosed and kicked people out of their homes. They repossessed cars, cook, stoves, and everything else, trying to regain some of their losses so they could pay their customers. It didn't work. Not for a long time.
For many years, things got worse and worse. One reason was that America became very Isolationist: not extending trade to the rest of the world. The best example was the Hawley-Smoot Tariff. Congress passed the tariff in 1930 hoping to give America's businesses and factories more demand for their products. The problem, though, was that many US businesses made money by exporting to Europe, and suddenly they couldn't. So they went bankrupt too. Sounded like a good idea, didn't it?
At least farmers were doing OK, right? Oh wait, farmers had been suffering for years. During World War I, European nations were demanding crops from America, and farmers borrowed money to buy more land and new equipment. When the war ended in 1918, Europe no longer needed American crops. Demand went WAY down, supply was already WAY up, so farm prices bottomed out. Farmers couldn't pay their debts, and the banks foreclosed on their farms and took their stuff. So obviously, no one was immune to suffering during the Depression.
Except for people like Joseph Kennedy. He had a lot of money,. So when the stock market bottomed out, he bought stocks from desperate people for pennies. He held them for years, until the value jumped way up, then sold them for millions and became fabulously wealthy. His son, of course, was President John F. Kennedy, later on.
And it was all decided by the Law of Supply and Demand.