The Great Depression The Crash & It’s Causes

The CRASH Thursday, October 24, 1929 sell, Sell, SELL! Five leading NY bankers meet at noon, secretly pump millions into the market. The hope – stabilize the market Black Tuesday - October 29, 1929 Recovery from Thursday didn’t last $30 billion evaporates

Why did the Crash occur? Speculation Def: buying and selling stock with the hope of making a large, quick profit Buy low, sell high Reality, not all stocks rise Stock: a certificate of partial ownership in a business Stock Market: the place stocks are bought and sold  New York Stock Exchange  Stock Market Crash: when a majority of stocks lose value on the same day

Why did the Crash occur? Buying Stocks on Margin Def: purchasing stocks at only a fraction of the actual dollar value Investors: 5% “down,” 95% on credit The stock itself was used as collateral Brokers charged interest (20%) As stocks “crashed”, brokers called in their loans Loans totaled $6 billion in July 1929 Stock prices fell rapidly as a majority of share holders sold

The Great Depression Definition: Period of economic downturn that began with the stock market crash of October 1929, continued through the decade of the 1930s, and characterized by high unemployment and a decrease in the standard of living for most Americans.

DUMB Causes of the Great Depression Depressed Farms & Industry The 20s weren’t so Roaring... For Farmers, Miners or Textile workers Auto and Construction Industries had slowed too Signs of a Problem: Overproduction Surplus of ag. products & consumer goods

DUMB Causes of the Great Depression Unequal Distribution of Wealth The rich got rich, the poor stayed poor Hourly workers did not share in the profits of the 20s Business owners kept the profit for themselves Signs of a Problem: Credit Purchases Individuals experiencing decreasing wages, job loss, & declining purchasing power

DUMB Causes of the Great Depression Monetary Policy Flawed 1920s President’s laissez-faire econ. policies Few regulations lead to corrupt practices Federal Reserve reacts erroneously Eliminates the use of credit Signs of a Problem: Less $$$ in Circulation Without credit, people stop buying

DUMB Causes of the Great Depression Banks Fail Contribute to speculation cycle Banks lent stock brokers $$$ to buy stocks “Savers” lost “savings accounts” Signs of a Problem: Loan Defaults The Statistics 9 million people lost their savings accounts 1929 – 659 banks close By 1933 – 25% of all US banks had failed

The Cycle of Economics Too many toasters = Stores have sales = Decline in profits = Wage cuts or layoffs = Factories close = Unemployment rises = Unable to pay bills = Loan defaults = Foreclosure = Banks fail = Economy Contracts Not enough toasters = Prices Rise = Increase in Profits = Wages rise/Hire more ppl = Unemployment declines = People buy cars = Loans taken out = Banks invest = Economy Grows