Presentation on theme: "The Nation’s Sick Economy"— Presentation transcript:
1 The Nation’s Sick Economy Chapter 14, Section 1The Great Depression Begins
2 What would you do to feed your family? .) Reproduction number: LC-USF (film negative) Caption: "Migrant agricultural worker's family. Seven children without food. Mother aged 32, father is a native Californian. March 1936." Location: FSA/OWI - J355. (Also available on microfilm and microfiche: Microfilm LOT 344; Chadwyck-Healey Far West fiche #32:A-9.)
3 What groups of Americans will be most hurt by the economic crash? What jobs might you consider to be depression proof?
4 What can you do to find a paying job? What can unemployed and impoverished people do to help each other?
5 ObjectivesSummarize the critical problems threatening the American economy in the late 1920’sDescribe the causes of the stock market crash and the Great DepressionExplain how the Great Depression affected the economy in the United States and throughout the world
6 Main IdeaAs the prosperity of the 1920s ended, severe economic problems gripped the nation.
7 Why It Matters TodayThe Great Depression has had lasting effects on how Americans view themselves and their government.
8 Economic Troubles on the Horizon 1.) How did the diminished demand affect farmers and business in the 1920’s?2.) How did falling incomes affect consumer behavior?
9 Industries in TroubleWhat industrial weakness signaled a declining economy in the 1920s?Answer – The older industries such as textiles, steel, and railroads, which were the foundation of our economy, were barely profitable.
10 Industries in Trouble Superficial prosperity of the 20s hid the signs Railroads losing business to other modes of transportCoal-mining hard-hit by new forms of energyHousing-starts decline. When the number of new homes being built falls so do related jobs
11 Farmers Need A LiftDuring WWI crop prices steadily rise as international demand soarsFarmers plant more and borrow money to buy land and equipment to meet the demandDemand falls after the war and prices drop
12 Farmers Need A Lift Farmers grow more to make up for decreasing prices This only drives prices lowerAnnual farm income drops from $10 billion to $4 billionFarmers can’t pay the banks
13 Farmers Need A Lift Banks foreclose to recoup debt Rural banks eventually begin to fail as wellCongress’ McNary-Haugen bill calls for price-supportsGovernment buys surplus crops at guaranteed pricesPres. Coolidge vetoes the bill twice
14 Consumers Have Less Money to Spend Rising PricesStagnant wagesUneven distribution of wealthOverbuying on credit
15 Living on Credit Many during the 20s were living beyond their means Credit – buy now, pay laterMonthly payments with added interest chargesEasy credit creates large consumer debtFaced with debt, consumers stop spending
17 Uneven RichesRich get richerIn 1929, 200 large corporations control 49% of American industryIn 1929, 24,000 families, or 0.1% of the population, have incomes exceeding $100,000They hold 34% of the country’s total savings513 families are millionaires
18 Uneven Distribution of Income Mass production of goods, advertising, and the mass media created a pressure for people to consume.Easy credit based on a rising economy gave people the means to buy what they could not afford.This “house of cards” crashed with the stock market.What percentage of Americans had incomes under $5,000?Answer 94%
19 A chart showing the disparity in income distribution in the United States. Wealth inequality and income inequality have been central concerns among OWS protesters. CBO data shows that in 1980, the top 1% earned 9.1% of all income, while in 2006 they earned 18.8% of all income.[22
20 The share of income going to higher-income households rose, while it fell for others. CBO has examined the trends in the distribution of income for all households between 1979 and 2007.
21 After-Tax Income Grew More for Highest-Income Households CBO finds that, between 1979 and 2007, income grew by:275 percent for the top 1 percent of households,65 percent for the next 19 percent,Just under 40 percent for the next 60 percent, and18 percent for the bottom 20 percent.
27 The Election of 1928 Hoover Stanford U. Sec. of Commerce Mining engineerIowaQuakerQuiet and reservedAlfred E. SmithSelf-made manCareer politician4 terms as NY governorLower East Side, NYCRoman CatholicPersonable
28 The 1928 Election Republican: Herbert C. Hoover 58% of the popular voteDemocrat:Alfred E. Smith41% of the popular vote
29 1928 Election: Herbert Hoover v. Alfred Smith The irony of the 1928 election…
30 “We in America are nearer to the final triumph over poverty than ever before.”
31 “Master of Emergencies” Mississippi River Flood of 1927President Calvin Coolidge sent the Sec. Of Commerce to lead relief effortsRaised $15 million through radio campaignBuilt tent cities for 600,000 homelessMade to remind voters what he had done to make life better for those in needMany historians believe this to be the first campaign film
32 Stock Market Dreams Most visible symbol of America’s prosperity Dow Jones Industrial Average is a measure based on the stock prices of 30 prosperous companies trading on the New York Stock ExchangeBull market is a period of rising pricesBy 1929, 4 million or 3% owned stock
33 New York Stock Exchange Started in 1792, it is the nation’s premier marketplace for buying and selling stocks.Stockbrokers take orders from customers to buy and sell shares of more than 3,000 companiesTo complete the transaction, brokers offer and receive bids in what resembles an auction
34 New York Stock Exchange Two types of transactions:A limit order tell the broker to buy and sell at a certain priceA market order tells the broker to execute the transaction immediately, regardless of price.With computers, brokers can complete a transaction in 12 seconds.The Internet allows investors to buy and sell for themselves, forgoing the cost of a broker.
42 The Bull Market Two ways to make money in the stock market: Long term investment…Speculation…Margin buyers… Risky?…
43 Trouble SignsSpeculation – buying stocks and bonds on the chance of a quick profit, while ignoring the risks.Stocks - Owning stocks in a company makes you part owner of that business. If the company is successful the value of the stocks will rise or it will be able to pay a higher annual dividend. The better the company does, the better the investor does.Bonds - Governments, states, corporations and many other types of institutions sell bonds. It is a promise to repay the principal or cost price along with the interest on a specified or maturity date.
44 Trouble SignsBuying on Margin – paying a small percentage of the stock’s price as a down payment and borrowing the rest.The government did little to regulate the marketThe reality was that these upward spiraling prices did not reflect the true value of the companiesIf stock prices decreased, people buying on margin had no way of paying off their loans
45 Interpret the following quote… “In effect, the automobile of American capitalism had one foot pressed to the accelerator of production and another on the brake of consumption.”
48 The dot.com BubbleLate 90s and the dot.coms is a modern example of the speculative bubble covering roughly 1995–2000the collection of start-up companies selling products or services using or somehow related to the Internet.Successful dot-comsAmazon.comeBayGoogleMSNPayPal (now a subsidiary of eBay)Priceline.comYahoo!Netflix
53 The Stock Market CrashHoover: “the fundamental business of America is sound”The market lost $40 billion from October 29 to April of 1930The market crash is followed by The Great DepressionThe economic low point:
54 The Causes of the 1929 Market Crash PANIC selling!!!!!! …No demandSpeculation & margin purchase –Undermined confidence in investment (fear), growth & spending (…FEAR!)Lack of government regulation…
55 Think…Where did the $40 billion in market assets (money) go when the market crashed?Paper profit…Is paper profit real?...
57 The Stock Market Crashes September 1929, stocks peak and then begin to fallConfidence wavers and some sell stockOctober 24, “Black Thursday” market plunges and people panic. 13 million shares are traded.What happened on October 29, 1929?
58 Black Tuesday The stock market bubble burst Confidence in broken and people sell 16 million shares franticallyStock purchases made on credit are huge debts nowOthers lose their life’s savingsBy mid-November, investors lost $30 billion, an amount equal to the cost of WWI
59 The Crash of 1929 October – average stock lost ¼ of its value November – industrial stocks lost ½ of their valueOctober 1929 to June 1932GM fell 73 points to 8USS 262 points to 21Montgomery Ward 138 to 4RCA from 101 to 2.5
60 Financial CollapseThe crash signaled the beginning of the Great Depression from 1929 to 1940.The crash alone did not cause the depression.What happened to banks and businesses in the economic collapse?
61 Banks and Businesses Fails Run on the banksBanks invested in the stock marketIn 1929, 600 banks closedBy 1933, 11,000 of the country’s 25,000 banks had failedNo government protection or insuranceMillions lose savings
65 How safe is your money?That "FDIC" logo you see as you walk in the door means that you hold insurance on your deposits. Depositors are typically protected for up to $100,000.Banks also carry private banking insurance -- specially designed private coverage to protect deposits in the case of burglaries, robberies, vandalism, etc.
66 Banks and Businesses Fail Between , the GNP – the nation’s total output of goods and services – was cut in ½ from $104 billion to $59 billion.90,000 businesses go bankruptUnemployment jumped 3% (1.6 million) to 25% (13 million)1 in 4 Americans out of workThe rest faced pay cuts and reduced hours
69 Why does it work? Banking is all about trust. While people are putting money into the bank every day, the bank is lending that same money and more to other people every day.If everyone goes to the bank at the same time and demands their money (a run on the bank), there might be problem.
71 All of the above become issues in the Great Depression. The impact of the Wall Street Crash…· 12M people out of work· 20K companies bankrupt· 1600 banks close· 1 in 20 farmers evicted· 23K suicides in one year–highest everAll of the above become issues in the Great Depression.
72 A recession is a business cycle in which economic activity slows down. Recessions occur when there is a drop in consumer spending.Production (GDP), investment, household incomes, business profits & inflation fall.Increased bankruptciesUnemployment rise.Governments response: Increasing money supply, increasing government spending & decreasing taxation.
73 DepressionA depression is a sustained, long-term downturn in economic activity in one or more economies (countries).A depression is characterized by:- Lasting a long time- No buyers…suppliers cut production- Large increases in unemployment- No availability of credit- Price deflation- Bank failures
74 A British election poster shows that the depression was a world event A British election poster shows that the depression was a world event
75 Worldwide Shock Waves Europe Costs of rebuildingHigh debtGerman war reparationsThe depression compounded these problems by limiting America’s ability to import European goodsThis in turn made it impossible to sell American products abroad
76 How did the Great Depression affect the world economy? AnswerWorld trade dropped, causing unemployment to rise globally
77 Hawley-Smoot Tariff 1930 by Congress Highest protective tariff Designed to keep out foreign competitionOpposite effectPrevented other countries from earning American currency to buy our goodsUnemployment grew worse in export industriesCountries retaliateWorld trade falls by 40%
78 GNP Gross National Product… GNP = The total amount of goods & services produced within our economy1929: GNP = $104 billion1933: GNP = $56 billion
79 Global Effects of the Depression American investors withdraw $ from EuropeWorld trade plummets and unemployment skyrocketsGermany and Austria extremely hard-hitIn Asia, farmers and workers suffer as exports drop by ½Demand for Latin American products like sugar, beef, and copper collapse
80 Global Repercussions, 1921-1933 LoansUS BanksWall St.ReparationsDebt PaymentDebt PaymentUS Treasury
81 Global Effects of the Depression How might a depression of this world scale contribute to the rise of dictators like Hitler and Mussolini?
82 SHOW U the causes of the Great Depression… Stock market crash & financialpanicHigh Tariffs limiting tradeOver production in industryWeak agricultural economyUnequal distribution of wealth