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PROSPERITY TO THE CRASH. Goals for today  Understand the major causes and effects of the stock market crash and the Great Depression.

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Presentation on theme: "PROSPERITY TO THE CRASH. Goals for today  Understand the major causes and effects of the stock market crash and the Great Depression."— Presentation transcript:


2 Goals for today  Understand the major causes and effects of the stock market crash and the Great Depression

3 In the 1920s: High Hopes  Journalist Lincoln Steffens: “Big business in America, is producing what the Socialists held up as their goal: food, shelter and clothing for all. You will see it during the Hoover administration.”  Business was booming!

4 The 1920s  Stock Market surges  In 1925, the value of all stocks $27 billion  By October of 1929, stock values were $87 billion  Many people thought everyone would become rich  Think back to yesterday’s simulation:  If people thought the stock market would continue to go up forever, what would that lead them to do?

5 But underneath the wealth…  There were warning signs that all was not well

6 1. Gap between rich and poor 2. Personal debt 3. Speculation 4. Farmers & workers struggle WARNING SIGNS

7 Warning Signs 1. GAP BETWEEN RICH AND POOR  The Rich:  Huge corporations – not small businesses – were succeeding  In 1929, 0.1% of the population had 34% of the country’s total savings  Secretary of the Treasury, Andrew Mellon, gave the largest tax cuts to the wealthiest Americans  The Poor:  71% of individuals and families earned less than $2,500 a year  80% of families had no savings

8 Warning Signs 2. PERSONAL DEBT  People believed that America was becoming more and more prosperous  They started buying more, and going into debt

9 Warning Signs 3. SPECULATION  Speculation: Making high-risk investments, hoping to get a huge return  Buying on margin: Investors could purchase a stock for a fraction of the price (10-50%) and borrow the rest. If the stock went up, people could make lots of money.

10 Two questions…  In yesterday’s simulation:  How did speculation and buying on margin hurt investors?  How might they also contribute to an unstable economy?

11 Warning Signs 4. FARMERS AND WORKERS STRUGGLE  Farms struggled  Farms couldn’t repay money to banks  6,000 rural banks failed during the 1920s  Factory workers also struggled  Worked many hours for little pay

12 In the Stock Market…  In 1929, prices in the Stock Market reach an all- time high  But a few worried investors started to sell  This led many people to follow their example  Think back to yesterday’s simulation…  Why might stock owners want to sell when they saw others selling? What were they afraid of?

13 BLACK TUESDAY  October 29, 1929  16.4 million shares traded on this day  Market collapses

14 Effects of the Stock Market Crash 1. Risky loans hurt banks 2. Consumer borrowing bankrupted people 3. Bank runsbank failures >People all ran to the bank to withdraw their money >Banks collapsed, people lost everything

15  Ultimately…  The Stock Market Crash leads to the Great Depression

16 Too much for sale, too little to spend Other Causes

17 Bank Failures  Banks were hurt by crisis because the money they lent out was not being repaid.  Banks closing at high rates, especial in rural areas  People ran to banks to withdraw their money. When banks ran out of money, they had to close.  People lost their savings.

18 Overproduction  By 1920s, factories were using assembly-line methods and producing a lot of goods.  Overproduction – more products are created than people can afford to buy  Factories had to cut-back costs and lay people off

19 Underconsumption  Underconsumption – people were not buying as much as the economy was producing.  By 1929, people who could buy cars, radios, etc. already had them.  Few rich did not buy enough, many poor did not spend enough

20 Video Clip  Boom to Bust, questions 1-4


22 After the crash…  Industrial production fell by 50%  12 million people were unemployed  Businesses closed, people had no money, families starved or scraped by

23 Government makes things worse  FED increases interest rates  Effect- less money moving around in the economy  Hawley-Smoot Tariff Act- Tax placed on imported goods (it was meant to protect US businesses)  Effect- Reduction in trade hurts US economy even more!

24 Video Clip  Questions 5-9

25 Next step  Map the causes and effects of the stock market crash visually Great a graph, chart or visual aid explaining the causes of the crash and its effects

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