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The Stock Market Crash (22.1)

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Presentation on theme: "The Stock Market Crash (22.1)"— Presentation transcript:

1 The Stock Market Crash (22.1)

2 Black Tuesday Tuesday, October 29, 1929: Millions of dollars were lost on the New York Stock Exchange Who would be affected by a loss in stocks? Stockholders Businesses Business owners Workers Consumers banks

3 Black Tuesday A messenger struggling through the crowd suddenly found himself yanked by his hair off his feet.  The man who held him kept screaming he had been ruined.  He would not let the boy go.  The terrified youth at last broke free, leaving the man holding tufts of his hair.  Crying in pain, the messenger fled the Exchange.  His hair never regrew. Behind, he left a scene of increasing pandemonium.  As huge blocks of shares continued to be dumped,... 1,000 brokers and a support army of 2,000 page boys, clerks, telephonists... and official recorders could sense this was going to be the 'day of the millionaire's slaughter.‘ William Crawford, swept along helplessly by the great tide of people, would always remember how 'they roared like a lot of lions and tigers.  They hollered and screamed, they clawed at one another's collars.  It was like a bunch of crazy men." - Gordon Thomas Is calling this event the ‘day of the millionaire’s slaughter’ correct? Why or why not? Think about this question as if you were living during this time.

4 Before the Crash Stock market is doing very well in late 20s
Dow Jones Industrial Average (average stock prices of major industries, used as tool to measure how market is doing) was at an all-time high in September 1929 Market not really as it appears Problem: Stock prices soared well past their real value Black Thursday- October 24 Stock prices begin to drop quickly Black Tuesday- October 29 16.4 million shares sold and Dow Jones goes down from 381 to 198.7 Event known as The Great Crash

5 Ripple Effect of the Crash
As we said before the crash affected many different groups of people A lot of the problems revolve around banking and loans Time for a demonstration!

6 Ripple Effect Explained
Risky Loans Hurt Banks Consumer Borrowing Bank Runs Banks Failed Savings Wiped Out Cuts in Production Rise in Unemployment Farther Cuts in Production Economic Contraction

7 1. Risky Loans Hurt Banks 2. Consumer Borrowing
Bank loans money to business, business uses money to make business better If stocks prices crash, business loses money, business cannot pay banks the interest on the loans 2. Consumer Borrowing People borrowed money to pay for goods and services and did not have payments ready when banks needed them

8 3. Bank Runs 4. Banks Failed 5. Savings Wiped Out
Great Crash made people rush to get money out of banks in fear that banks had none 4. Banks Failed Banks were not getting interest payments and were hurt by runs, so they had to close! 5. Savings Wiped Out If a bank fails, accounts are lost By 1933, 9 million savings accounts vanished

9 8. Farther Cuts in Production 9. Economic Contraction
Businesses cannot borrow money so cannot make goods 7. Rise in Unemployment Less production means less jobs Less jobs means less people spending money 8. Farther Cuts in Production People cannot afford goods so businesses make less 9. Economic Contraction Economic decline followed by falling output of goods and services

10 Impact on Farmers and Workers
Factories closed- even Ford’s, millions without work After factories, small businesses and restaurants closed because they have no customers Crop prices go down ¼ unemployed (12 million people) and Gross National Product (total value of goods and services) down from $103 billion to $53 billion

11 Impact on the World Rise in international banking, manufacturing and trade= interdependency US leading economy- triggers ripple effect Germany payment of WWI loans Germany repaying loans depended on US investment, Germany pays France and GB, F and GB pay US, cycle that fails when US can no longer invest in Germany


13 Underlying Causes of the Depression
Bigger problems than just crash An Unstable Economy Uneven distribution of wealth More goods produced than needed Overspeculation Bought stocks with borrowed money, pledged those stocks as collateral to buy more Collateral- item of value to surrender if borrower cannot repay LP- Use student example Too much optimism and borrowed money Government Policies Federal Reserve (controls amount of money in circulation)- had too little money in circulation at time of crash

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