1 Crash and Depression (1929–1933)

2 The Stock Market Crash What events led to the stock market’s Great Crash in 1929? What events led to the stock market’s Great Crash in 1929? How does the stock market work? How does the stock market work? Why did the Great Crash produce a ripple effect throughout the nation’s economy? Why did the Great Crash produce a ripple effect throughout the nation’s economy? What were the main causes of the Great Depression? What were the main causes of the Great Depression?

3 Economy Appears Healthy In 1925 the stock market’s value of all stocks was $27 billion dollars. In 1925 the stock market’s value of all stocks was $27 billion dollars. In 1928 alone, stock values rose by almost $11.4 billion. In 1928 alone, stock values rose by almost $11.4 billion. By early October 1929, stock values hit $87 billion. By early October 1929, stock values hit $87 billion. Unemployment was below 4%. Unemployment was below 4%. Manufacturing output rose more than 60% Manufacturing output rose more than 60% Gross national product (total of goods and services) rose 5% a year Gross national product (total of goods and services) rose 5% a year Industrial output per worker grew 33% Industrial output per worker grew 33% Per capita income grew 30% with virtually no inflation Per capita income grew 30% with virtually no inflation

4 Economy Appears Healthy Economic Confidence Confidence in President Hoover. Better employee benefits Rising wages. Low unemployment High stock market.

5 Economic Danger Signs There are several factors, not one that caused the Great Depression. There are several factors, not one that caused the Great Depression. Factor # 1 Factor # 1 The uneven distribution of income. The uneven distribution of income. Small amount of people with a lot of money and large amount of people with little money. In 1929, the richest Americans, or just.1% held 34% of the country’s total savings. By contrast, 71% of individuals and families earned less then $2,500 a year. Business owners put too much of profits back into production, should have paid workers more to buy more goods. Farmers had to deal with falling farm prices, in addition to large debt from land and machinery purchases $1.18 a bushel for wheat 1932 $.49 a bushel for wheat

6 Economic Danger Signs Factor # 2 Factor # 2 The availability of easy credit. The availability of easy credit. People piled up huge debt to new installment buying and were unable to buy more goods or make all of the payments. People piled up huge debt to new installment buying and were unable to buy more goods or make all of the payments. Private banks and brokerage firms also contributed to this problem. Private banks and brokerage firms also contributed to this problem. They loaned people money to invest in stock market (buying on margin). They loaned people money to invest in stock market (buying on margin). Speculators bought stocks with borrowed money and pledged those stocks as collateral to buy more stocks. Speculators bought stocks with borrowed money and pledged those stocks as collateral to buy more stocks. Brokers’ loans went from under $5 billion in 1928 to $850 billion in September Brokers’ loans went from under $5 billion in 1928 to $850 billion in September Need only 10% down to buy stock. Need only 10% down to buy stock. Take loan, make a profit, pay back loan. Take loan, make a profit, pay back loan. Stock market soars, people profit, bank profits from interest. Stock market soars, people profit, bank profits from interest. Every one is happy. Every one is happy. When market crashed, people couldn’t pay back brokers or banks and they had to close. When market crashed, people couldn’t pay back brokers or banks and they had to close.

7 Economic Danger Signs Factor # 3 Factor # 3 An unbalanced foreign trade An unbalanced foreign trade In 1930, Congress passed the Hawley Smoot Tariff Act, creating the highest protective tariff in U.S. history. 5 months later unemployment rate hit double digits. Led to nations not being able to sell goods in U.S. market and now have no money to buy U.S. goods. Some nations angered and refuse to buy U.S. goods. Representative W.C. Hawley, and Senator Reed Smoot shake hands in agreement on new tariff bill Representative W.C. Hawley, and Senator Reed Smoot shake hands in agreement on new tariff bill

8 Economic Danger Signs Factor # 4 Factor # 4 Too Many Goods, Too Little Demand and Mechanization Too Many Goods, Too Little Demand and Mechanization People could not afford to buy goods as fast as the assembly lines turned them out. Overproduction caused some industries to slow down, for example the automobile. Other related industries like glass, rubber and steel also suffered. Plants now used machines more instead of people, creating less jobs.

9 The Market Crashes Factor # 5 Factor # 5 The market crash in October of 1929 happened very quickly. The market crash in October of 1929 happened very quickly. In September, the Dow Jones Industrial Average, an average of stock prices of major industries, had reached an all time high of 381. In September, the Dow Jones Industrial Average, an average of stock prices of major industries, had reached an all time high of 381. On October 23 rd and 24th, the Dow Jones Average quickly plummeted, which caused a panic. On October 23 rd and 24th, the Dow Jones Average quickly plummeted, which caused a panic. On Black Tuesday, October 29, 1929, most people sold their stocks at a tremendous loss. On Black Tuesday, October 29, 1929, most people sold their stocks at a tremendous loss. On this day 14.4 million shares were sold, compared to the average 4 million to 8 million shares a day. On this day 14.4 million shares were sold, compared to the average 4 million to 8 million shares a day. This collapse of the stock market is called the Great Crash. Overall losses totaled $30 billion. This collapse of the stock market is called the Great Crash. Overall losses totaled $30 billion.

10 How the Stock Market Works For example, a restaurant you own is worth $100,000 and 10 people come to you and want to buy it. For example, a restaurant you own is worth $100,000 and 10 people come to you and want to buy it. Each of those people then own a 1/10th share or portion of your company. Each of those people then own a 1/10th share or portion of your company. They would receive 10% of the profits (dividend) and each person would have one out of 10 votes in any business decision. They would receive 10% of the profits (dividend) and each person would have one out of 10 votes in any business decision. A stock simply represents ownership of a company’s assets and profits. A stock simply represents ownership of a company’s assets and profits.

11 How the Stock Market Works Stocks in publicly traded companies are bought and sold at a stock market. Stocks in publicly traded companies are bought and sold at a stock market. You go to the supermarket to get a wide variety of food in one place, NYSE is a supermarket for stocks. You go to the supermarket to get a wide variety of food in one place, NYSE is a supermarket for stocks. The price of a stock is: The price of a stock is: the asset value of the company the asset value of the company dividend that the stock pays dividend that the stock pays the projected earnings of the company in the future. the projected earnings of the company in the future.

12 How the Stock Market Works The Dow Jones Industrial Average and other averages like the S&P 500 are broad market averages designed to tell you how companies traded on the stock market are doing in general. The Dow Jones Industrial Average and other averages like the S&P 500 are broad market averages designed to tell you how companies traded on the stock market are doing in general. For example, the Dow Jones Industrial Average is a market indicator that averages 30 stocks to determine how the market as a whole is doing. For example, the Dow Jones Industrial Average is a market indicator that averages 30 stocks to determine how the market as a whole is doing. stocks like GM, Goodyear, IBM and Exxon. stocks like GM, Goodyear, IBM and Exxon. If the economy is doing well, then the prices of stocks tend to rise and referred to as a bull market. If it is doing poorly then it is called a bear market. If the economy is doing well, then the prices of stocks tend to rise and referred to as a bull market. If it is doing poorly then it is called a bear market. The big stock exchanges are: NYSE and NASDAQ. The big stock exchanges are: NYSE and NASDAQ.

13 How Did the Stock Market Crash in 1929? Stocks were overvalued due to over speculation. Stocks were overvalued due to over speculation. The companies were not worth (assets, dividend, projected earnings) as much as their stocks were valued at. Beginning in September 1929, the stock market began to decline in value as larger investors realized that the stocks were inflated in price. On October 23, the stock market lost thirty-one points -- approximately seven percent of its value. Conditions worsened the next day. By mid- November, the twenty-five leading industrial stocks had dropped to less than one-half of their value two months earlier. The market continued to decline in value, leaving investors who had purchased stock on credit financially destroyed.

14 How Did the Stock Market Crash in 1929? (cont) Large amount of debt in order to buy stocks. (Margin buying) Large amount of debt in order to buy stocks. (Margin buying) Many banks and brokers called their loans in at once which cause large amount of stock to be sold in a short time. Many banks and brokers called their loans in at once which cause large amount of stock to be sold in a short time. This in turned caused the demand to fall and the value of the stock to drop. This in turned caused the demand to fall and the value of the stock to drop.

15 The Great Depression The economic contraction that began with the Great Crash triggered the most severe economic downturn in the nation’s history—the Great Depression. The economic contraction that began with the Great Crash triggered the most severe economic downturn in the nation’s history—the Great Depression. The Great Depression lasted from 1929 until the United States entered World War II in The Great Depression lasted from 1929 until the United States entered World War II in The stock market crash of 1929 did not cause the Great Depression. Rather, both the Great Crash and the Depression were the result of deep underlying problems with the country’s economy. The stock market crash of 1929 did not cause the Great Depression. Rather, both the Great Crash and the Depression were the result of deep underlying problems with the country’s economy.

16 Events Leading up to the Great Depression The Great Depression Uneven Distribution Of Income Availability of Easy Credit Unbalanced Foreign Trade Oversupply of Goods and Mechanization The Stock Market Crash

17 Great Crash Investors Businesses and Workers Investors lose millions. Businesses lose profits. Consumer spending drops. Workers are laid off. Businesses cut investment and production. Some fail. Banks Businesses and workers cannot repay bank loans. Savings accounts are wiped out. Bank runs occur. Banks run out of money and fail. World Payments Overall U.S. production plummets. U.S. investors have little or no money to invest. U.S. investments in Germany decline. German war payments to Allies fall off. Europeans cannot afford American goods. Allies cannot pay debts to United States. Great Crash Investors Investors lose millions. Businesses lose profits. Great Crash Investors Businesses and Workers Investors lose millions. Businesses lose profits. Consumer spending drops. Workers are laid off. Businesses cut investment and production Some fail. Banks Businesses and workers cannot repay bank loans. Savings accounts are wiped out. Bank runs occur. Banks run out of money and fail. World Payments Overall U.S. production plummets. U.S. investors have little or no money to invest. U.S. investments in Germany decline. German war payments to Allies fall off. Europeans cannot afford American goods. Allies cannot pay debts to United States. Great Crash Investors Businesses and Workers Investors lose millions. Businesses lose profits. Consumer spending drops. Workers are laid off. Businesses cut investment and production Some fail. Banks Businesses and workers cannot repay bank loans. Savings accounts are wiped out. Bank runs occur. Banks run out of money and fail. World Payments Overall U.S. production plummets. U.S. investors have little or no money to invest. U.S. investments in Germany decline. German war payments to Allies fall off. Europeans cannot afford American goods. Allies cannot pay debts to United States. Great Crash Investors Businesses and Workers Investors lose millions. Business lose profits. Consumer spending drops. Workers are laid off. Businesses cut investment and production Some fail. Banks Businesses and workers cannot repay bank loans. Savings accounts are wiped out. Bank runs occur. Banks run out of money and fail. World Payments Overall U.S. production plummets. U.S. investors have little or no money to invest. U.S. investments in Germany decline. German war payments to Allies fall off. Europeans cannot afford American goods. Allies cannot pay debts to United States. Effects of the Great Crash, 1929

18 Suffering on the Homefront Unemployment rose to 1 in every 4 in the 1930’s. Unemployment rose to 1 in every 4 in the 1930’s. 15,000 women for every 6 openings. 15,000 women for every 6 openings. Economic conditions grew worse from Economic conditions grew worse from Gross National Product dove from 103 billion to 56 billion in Gross National Product dove from 103 billion to 56 billion in ,000 businesses shut their doors. 85,000 businesses shut their doors. 100,000 per week lost their jobs. 100,000 per week lost their jobs. 400,000 farmers lost home and land. 400,000 farmers lost home and land. Price of crops fell by more then half. Price of crops fell by more then half. 6,000 banks failed, wiping out 9 million saving accounts. 6,000 banks failed, wiping out 9 million saving accounts.

19 Suffering on the Homefront No federal systems were in place to help. No federal systems were in place to help. No public welfare, no social security. Families suffered. Families suffered. Marriage and birth rate dropped. Higher divorce rate. Malnutrition throughout the country. Discrimination Increases A.A. unemployment rose to 56%. Whites labors began to demand the low-paying jobs typically filled by minorities.

20 The Stock Market Crash— Assessment ________ is the term for when investors borrowed money in order to buy stocks. (A)Buying on margin (B)Overspeculation (C)Black Tuesday (D)Dow Jones Industrial Which of the following reason was NOT a cause for the Great Depression? (A) Uneven distribution of wealth (B)The stock market crashing (C)Lowering interest rates (D)Availability of easy credit

21 The Stock Market Crash— Assessment ________ is the term for when investors borrowed money in order to buy stocks. (A) Buying on Margin (B) Overspeculation (C)Black Tuesday (D)Dow Jones Industrial Average Which of the following reason was NOT a cause for the Great Depression? (A) Uneven distribution of wealth (B) The stock market crashing (C)Lowering interest rates (D)Availability of easy credit