The Stock Market Crash Angela Brown Chapter 22 Section 2
Stock Market 1928 Dow Jones Industrial Average - average of stock prices of major industries March 1929 risen another 122 points September 3 all- time high of 381
The Market Crashes Prices for many stocks soared far above their real value in terms of the company’s earnings and assets. images/adcopy/1929%20Stock%20 Crash.gif
Black Thursday Stocks fell slowly. Some stockbrokers called in loans – others continued to lend Dropped 21 points in an hour Oct. 23 Oct 24 investors began to sell – stock prices fell
BBBBusiness, political leaders told country not to worry. $$$$3 billion paper loss on the stock exchange in a single day. market_crash_1929.jpg
Black Tuesday To stop panic, a group of bankers pooled money to buy stock. Stabilized prices for a few days Investors raced to get their money out of the stock market. government-control-stock-market-crash-1.jpg
Black Tuesday, Oct. 29, 16.4 million shares were sold, compared with average 4 million to 8 million shares per day = GREAT CRASH Continued to fall November from $30 billion total losses Business Cycle – periods of economic growth, then contraction
From Riches to Ruin Took time for people to recognize the extent of the disaster caused by the crash. People whose entire wealth did not depend on the stock market, life went on much as before. Brokers and banks called in loans – people did not have cash to pay them
The Crash Affects Millions million of 120 million U.S. population had invested in the stock market soon affected millions had never owned stock Great Depression – a severe economic decline that lasted from 1929 until the U.S. entered WWII in 1941 (12 years)
Americans lost jobs, farms, homes Ripple effect produced world turmoil for years
Impact on Workers and Farmers 1931 Ford shut down Detroit automobile Factories – 75,000 out of work European workers had government unemployment insurance 1932 ¼ labor force out of work (12 million)
The Gross National Product (GNP) – total value of goods and services a country produces annually ($103 billion in 1929) 1933 GNP 56 billion
Banks Close Banks exist on interest earned from lending out deposits. People rushed to withdraw money. 5500 banks failed. 1933 money from 9 million savings accounts vanished &rendTypeId=4
Impact on the World International banking manufacturing, trade made nations interdependent. Global economic system crumbled. U.S. had insisted France, Britain repay war debt. Import taxes high = hard for European nations to sell goods in U.S.
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Allies relied on Germany’s reparations for payments. Depression – investments fell off – Germany suspended reparations – Allies stopped payments Europeans couldn’t afford to buy U.S. goods = downward cycle in global economy
Causes of Depression Overspeculation Speculators bought stocks with borrowed money, pledged those stocks as collateral to buy more stocks. Collateral is an item of value that a borrower agrees to forfeit to the lender if the borrower cannot repay a loan. Stock market boom was based on borrowed money and optimism instead of real value.
Government Policies Federal Reserve System, which regulates the amount of money in circulation, cut interest rates to spur economic growth. 1929 limited money supply to discourage lending. Too little money in circulation to help the economy recover.
An Unstable Economy National wealth was unevenly distributed (saved or invested rather than buy goods). Industry produced more goods than could sale. Farmers and workers not part of boom. Unevenness made rapid recovery impossible.