1. The Great Depression
Objectives:
Summarize the problems that threatened the American economy in the late 1920s
Describe the causes of the stock market crash and Great Depression
Explain how the Great Depression affected the economy in the United States and around the world

2. Industries in Trouble:
Critical Problems
Industries in Trouble:
After WWI, demand for many industries fell: Mining and lumber
Basic industries: railroads, textiles, steel made little profit
Railroads lost business to new forms of transportation: buses, cars, trucks
Boom industries, like automobiles, consumer goods weakened
Housing starts fell (number of new homes built)
Agriculture suffered from over production and less demand

4. Farmers in Trouble

5. Agriculture suffered the most
During WWI high demand for crops like wheat and corn. Prices soared.
Farmers had planted more and taken out loans for equipment and land
Demand fell after the war, crop prices dropped over 40% and more
Farmers boosted production to sell more crops, but prices only dropped further
Farmers couldn’t pay back their loans
Lost their farms and many had property seized by the banks
As farmers defaulted (didn’t pay their loans), rural banks also failed
Congress tried to pass a bill for price supports (a minimum amount the government would pay for surplus crops) but the bill was twice vetoed by President Coolidge.

6. Consumers Have Less Money to Spend
By the late 1920s, Americans were buying less:
Rising prices
Stagnant wages
Unbalanced distribution of income
Overbuying on credit
Production had expanded faster than wages: created a larger gap between the rich and poor

7. Living on Credit
American appeared to be living well, but in reality they were often buying on credit and living beyond their means.
Businesses made credit easily available in the form of installment plans where consumers would put down a small amount for a product and then pay it off monthly in installments.
Thus businesses encouraged Americans to pile up huge debts that they couldn’t pay off.

8. Uneven Distribution of Income
During the 1920s, the rich got richer: the wealthiest 1% increased their earnings by 75%
The 99% (everyone else) saw an increase of just 9%
More than 70% of American families earned less than $2,500 per year…the minimum amount considered necessary to make a decent living
Families earning twice that much often couldn’t afford the household goods that manufacturers produced
Barely half of US homes in many cities had electric lights or heat
1 home in 10 in cities had a refrigerator
Uneven distribution of wealth meant that most Americans could not fully participate in the economic advances of the 1920s. Prosperity rested on a fragile foundation

10. The Stock Market
While some economists were warning that the nation’s economy was weak, most people had confidence in the nation’s economic health.
Many people who could afford it, bought stocks in the stock market..and the Dow Jones Industrial Average was the main stock market.
Stock: a share that represents a portion of ownership in a company
Stock market: a place that serves as a market, where people can buy and sell stocks.
By 1929, about 4 million Americans or 3% of the nation’s population owned stocks. Many of these investors were already wealthy, for others it was a gamble in the hope of getting rich.

11. Most Americans who participated in the stock market had little or no knowledge of either stocks or finance.
People were engaging in speculation: engaging in risky business transactions in the hope of making a quick or large profit. Many Americans were quickly buying and selling stocks and bonds ( bonds are like IOUs, you are lending the government money and they pay you back with interest after a number of years).
Speculation was risky and many people were buying on margin: paying for a small portion of a stock, and the rest they would borrow on credit. The problem with this is 1.) stocks are a risk anyway..no guarantee they will go up 2.) If the stock price drops and your margin is “called” you are forced to pay what you owe whether you have the money or not. 3.) Buying on credit added to people’s debt.

12. The Stock Market Crashes
By September 1929 stock prices peaked and then began to fall.
Confidence in the market wavered, some investors began to panic and tried to sell off their stocks before the market dropped further.
On October 29, 1929 – now known as “Black Tuesday” the bottom fell out of the market. In other words stock prices plunged. Stockholders (people who own stock) frantically dumped their shares (over 16.4 million were sold that day).
Additional millions of shares could not find buyers (nobody wanted to buy them) and people who bought on credit were stuck with huge debts. Many lost their life savings.
By mid November, investors had lost about $30,000,000,000 (30 billion) which was an amount equal to the cost of WWI

13. The Great Depression Begins
The stock market crash signaled the beginning of the Great Depression: the period of time from in which the economy plummeted and unemployment skyrocketed.
The crash of the stock market was not the cause of the depression, but it hastened it…made it happen faster.
Unemployment jumped from 3% of the workforce in to over 25% by 1933.
The Gross National Product (GNP) which is the total output of goods and services in the country…was cut in half between 1929 and 1932.
Approximately 90,000 businesses went bankrupt.

14. Worldwide Effects
The Great Depression was felt around the world.
Europe struggled after WWI to pay off war debts.
Germany in particular suffered starvation and huge debts. They had been forced to pay reparations (money) for having caused the war.
The Great Depression limited our ability to import European goods and, made it difficult for us to sell our goods overseas.
The Hawley Smoot Tariff Act was passed by congress in This was the highest tariff (a tariff is a tax on foreign goods) in US history. It was meant to protect American farmers and manufacturers from foreign competition.
Many countries raised their own tariffs in response thus trade was stifled further hurting our economy as well economies around the world.