Ch 11 sec 1

 The 1920’s were a time of economic growth in the U.S. The GNP rose by 30 percent over a 6 year period.  Manufacturing increased, especially the automotive industry, and unemployment was very low. Employees received benefits at work, and had more time and money for leisure activities.

 The stock market kept rising, and this made more people start to invest in stocks. The lure of getting rich from stocks seemed to be a reality with how much stocks increased in the 1920’s.  All of the prosperity made Americans trust their business model and their government.

 In 1928 Herbert Hoover was elected president, even though he had no experience in government. He was an able administrator, and that is what people thought the country needed, since things were going so well.  Hoover was a Quaker, and was a shy, reserved person. He was a “dry” candidate, someone who supported Prohibition. Al Smith was a Catholic and very outgoing, and was a “wet” candidate, supporting alcohol sales.

 There was a great divide between the rich and poor. Even though the economic prosperity was real, it only benefitted a small group of people.  The top 1% became very wealthy, while 70% of the population was below the income for a good standard of living.

 Credit became more available to everyone, but by the end of the decade that credit was running out. People used credit to increase their standard of living, but now they had to pay it back.  People also used credit to buy their stocks as well. Called “buying on the margin”, they only paid a portion of the stock cost, and paid back the loan when they sold.

 Buying on the margin works when stocks increase, but if they decrease you can lose all your investment, and more.  The Federal Reserve tried to make it more difficult for brokers to offer margin loans, but corporations gave the money to brokers, and margin loans continued.

 Late in 1929 people began to wonder if the stock market could continue to increase in value. The economy started to turn downwards, with sales of goods starting to drop.  People began to sell their stock, and on Thursday, Oct. 24, the selling set off a panic that made other people sell, too. All of the selling made stock prices drop very fast.

 Some bankers began to buy stocks to keep prices from dropping too low, and the next day some gains were made. But on Monday the selling started again and the market dropped.  Tuesday, Oct 29 th saw the worst day ever for the stock market. Every business, no matter how strong they were, had their value drop.

 The stock market dropped half its value in the month of October, 16 billion dollars. Everyone was affected by this, investors and businesses.

 People who bought on the margin lost everything, and huge fortunes were gone in the span of a few days.  Banks had invested in the stock market as well, and they lost huge amounts. They had loaned money to brokers who could not pay them back, and people withdrew all of their money from the banks in fear that the bank would close and they would lose all their savings.

 Businesses had no money to expand, no one was buying their products, and people were losing their jobs. So more people were not buying products, and more people lost their jobs.  The crisis in the United States spread to the rest of the world. Europe was still trying to recover from WW1, and when the money from the U.S. stopped flowing, their economies went into the same downward spiral.

 Europeans lost jobs, businesses failed, and governments became unstable.  This led to countries raising taxes on imports to try and help their own businesses, but what it actually did was stop international trade from occurring for years.

 Create a poster describing the effects of the stock market crash of Full page, in color, with captions.