The Nation’s Sick Economy What caused the economy to go bad at the end of the 1920s?

Signs of Trouble Several industries were struggling at the end of the 1920s: 1.Railroad was losing business due to cars/planes 2.Coal mining was down due to electricity/oil 3.Lumber industry suffers due to less demand for houses vs 4. Crop prices begin to fall, too many crops produced and people not buying as much due to pre-packaged food - Farmers can’t pay debt to banks, banks seize farms/equipment Overall, these industries begin cutting wages or lay people off Congress tries to pass price-controls, Coolidge vetoes it

More Trouble: Shrinking Wealth Income gap between the rich & poor were widening (most wealthy not effected by wage cuts, layoffs or debt) Late 20s: Due to personal debt consumers start buying less Mid 1920s: Easy credit causes massive consumer debt 80% of Americans did not have any money in savings $5,000- 9,999(5%) $10,000 or more (1%) $1,999 or less (65%) $2,000-$4,999 (29%)

Herbert Hoover Elected Coolidge decides not to seek another term, Secy of Commerce Herbert Hoover runs as a Laissez-Faire Republican, wins easily “We in America are nearer to the final triumph over poverty than ever before.” Despite rising unemployment and signs of a failing economy, Hoover states business will fix the problems itself

Risks in the Stock Market 1929: 4 million Americans have invested in the stock market Many investors use speculation (buy risky stocks, make a quick profit) Many also buy on margin: paying a small % of a stock’s price as a down payment and borrowing for the rest Dow Jones Industrial Average (which measure overall stock price) had gone up every year in 1920s “bull market”

The Stock Market Crashes Investors worry about economy, begin selling stock Stock market plunges, Oct 29 th “black Tuesday” 16.4 million shares were “dumped”, stock market loses 25% of its value Total investments lost = $30 billion, panic ensues Those who bought on speculation & margin hit hardest

Financial Collapse People try to pull their remaining money out of the banks Run on banks causes banks to fail, : 11,000 of 25,000 banks collapsed People stop buying, businesses start laying off employees : Unemployment rate goes from 3% to 25% US GNP (amount of goods & services produced) is cut in half : 90,000 businesses go bankrupt

Hawley-Smoot Tariff Act To help businesses & farmers, Congress raises tariffs, despite economists saying not to do this, Hoover signs it Plan backfires as Europe can’t afford to buy American products Worldwide trade drops 40%, worldwide depression hits

Causes of the Depression 1.Warning signs of struggling industries ignored 2.An unequal distribution of income 3.Too much debt due to easy credit 4.People gamble on stock market causing crash 5.Run on banks cause banks to fail 6.Poor govt action (like tariffs) What do you mean the roaring 20s are over??