Only a Fool Holds Out For Top Dollar Ch 22 Sec 1

Clouds on the Horizon 1920’s wild economic boom ensured hard crash Unregulated economy combined with overzealous investors A slowing economy ignored Industry Large corporations profits continually shrank during decade Energy companies slowed following WWI & new competition Housing starts slowed New homes lead to many job opportunities for multiple industries

Agriculture Massive increase of production lowered prices Farmers no longer could afford to pay back loans & defaulted Caused banks to lose vast amounts of money Price supports Plan to have government buy excess food at set cost to give stability to farmers incomes Vetoed by President Coolidge twice arguing that it was un-American & anti-capitalist

Consumers spending on borrowed time Consumer spending 1925-1929 rising prices, stagnating incomes led to Americans spending more than they made Credit Many consumers turned to credit to buy items but pay later w/ interest charges Large debts by American families led to a reduction in buying

The wild bull in the stock market Individuals bought into stock market as a way to make quick cash (speculation) Massive stock purchases caused the Dow Jones Industrial Average (30 largest companies in America) to soar…causing more people to buy into the market Consequence—stocks became valued more than what they were really worth on buying frenzy

Buying frenzy led to individuals buying stocks on margin Placing 25% money down to purchase stock and borrow the rest of the money Consequence—people invested life savings (hard money) into overvalued stocks (paper money) If stocks fell, people would lose their hard money

The Storm Stock Market crashes as investors become very nervous Investors realized that stocks and the US economy was “overvalued” Worth more on paper than in hard money Black Tuesday 10/29/29 16.4 million shares sold in one day As stock values fell, people who bought stocks at high price sold at low value, losing money Two weeks later, the NYSE lost $30 billion in value

The Collapse Banks Businesses People rushed to bank to pull hard money back Problem—many banks invested hard money in stock market…losing it in the crash 1929—600 banks declared bankruptcy (1933 ½ of 25,000 banks failed) Businesses Americans without any money cannot buy goods Lack of consumption leads to companies cutting production & jobs Unemployment—1929, 3%...1933, 25% American economy collapses as people out of work, can’t buy items US Gross Domestic Product (all goods bought in US) GDP—1929, $104 billion…1933, $59 billion

International economies European nations still struggling from WWI relied on strong US economy to export goods Germany trying to repay massive WWI war reparations US raises tariffs (Hawley-Smoot) to all-time high European countries cannot buy US goods US economic bust plunged world into economic depression