Great Depression
How does the stock market work?
Economic Expansion Partially based on optimism Farmers saw incomes fall High Gross National Product (GNP) Total value of goods and services produced in a nation Low unemployment Satisfied workers Performance of stock market
Investment Many Americans invested because of stories of fortune Peddler tale Safe way to make money John Raskob quote p. 74 Peddler made 250,000 with 4,000 dollars.
Wealth distribution Top 5%=70% of income Bottom 95%=30% of income Credit allowed people to buy goods, but they finally reached their credit limit and purchases slowed down Problems
Problems cont. Use of credit for stocks Fed limited margin loans Buying on margin Margin call Fed limited margin loans Corporations provided cash against this Why? Problems cont.
Economist Roger Babson predicted a crash but was largely ignored Economists views
Stock Market Crash Oct. 24, 1929 some investors started selling stocks Began a huge sell off At the end of the day a number of bankers purchased stocks to stop panic Oct. 29th Black Tuesday Largest drop in stock value in a single day (half of the market’s value) John Hersch $3,000 dollars lost in the stock market Stock Market Crash
Do you think this could happen today?
Effects Individuals Banking Crisis Often owed money for stocks Forced to sell below cost Banking Crisis Rush to withdraw money Banks invested too Stock brokers default on loans
Effects cont. Business Overseas Money not available to businesses Consumers cut spending Overseas Fragile European Economies (WWI) Ripple Effect
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