Chapter 24 The Great Depression Section 1 Prosperity Shattered

Credit By 1929 the total number of purchases made with credit was six times higher than in Credit Purchases in 1929 reached a total of $7 Billion Federal Government encourage borrowing by keeping interest rates low during 1920’s

Playing the Market Bull Market – one with an upward trend in stock prices – As demand rose so did stock prices Bear Market – one with downward trend in stock prices “playing the Market” – Buying and selling to make a quick profit – Rapid buying and selling inflated the prices of stocks Margin Buying – Practice of purchasing stocks with borrowed money – Speculators put up as little as 10 percent of the price and borrowed the rest – If prices fall investors would be deep in debt Roger Babson – stock analyst – “Sooner or later a crash is coming and it may be terrific (Immense)”

Stock Market Crashes Black Thursday – October 24, 1929 – Investors made nervous by factors as high interest rates suddenly began to sell their shares – Just beginning of long downward spiral Black Tuesday – October 29, 1929 – Prices sank to a new low when investors dumped more than 16 million shares of stock on the market – Brokers contact customers who owed them money for stocks purchased on margin. – Thousands of people were forced to sell their stocks at huge losses. By years end stock losses exceeded the total cost of U.S. involvement in World War I

Depression Begins Large banks suffer significant losses Borrowers began defaulting on their loans Some banks are forced to close FEAR of additional bank failures aggravated the crisis Depositors panic and try to withdraw their savings Between more than 5,000 banks failed The 1930 collapse of one large New York City bank wiped out some 400,000 depositors Businesses began to trim inventories, scale back production, and lay off workers In 1929 the U.S. gross national product (total value of goods and services produced in a year) had reached $103 Billion. In 1933 it fell below $56 billion Unemployment in 1932 reaches 23.6% up from 3.2% three years earlier Great Depression refers to the economic downturn that gripped the U.S. from 1929 until the beginning of WWII.

Causes of the Great Depression Global depression – Economic trouble in Europe Hoover blames the state of global finances on WWI World trade rapidly declined during the 20’s United States contributed to the worldwide economic downturn – High tarriffs on imports