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The Stock Market Crash
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Stock Market Down Jones Industrial Average 1928- 191 March 1929- 313 Sept 1929- 381 Keeping track of points was very popular Stock prices began to fall slowly Stock market closed on Wed 10/23/1929 Dropped 21 pts in an hour Thursday 10/24/1929 (Black Thursday) worried investors began to sell Prices fell GE stock at $400/share sold at $283/share
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Business and political leaders told the country not to worry Bankers got together to buy stock to try and help stabilize prices Only worked a few days by Monday 10/28/1929 prices fell again Black Tuesday- 16.4 million shares were sold Great Crash- Collapse of the stock market Overall losses were $30 billion Part of the business cycle
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Effects of the Great Crash Beginning only felt by the people invested in the stock market Began to ripple through the economy
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Effects of the Crash Risky loans hurt banks Earn money on interest of money lent businesses for high risk investments When prices fell they could not business could not pay loans Consumer borrowing Made money on loans to consumers Consumers did not have money to pay loans
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Effects of the Crash Bank runs People were fearful that banks would run out of money Made withdraw from banks Banks had to recall loans Bank failures Combinations of unpaid loans and bank runs Closed when they could return money to the depositor More than 5,500 banks closed Savings wiped out
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Effects of the Crash Cuts in production Business could not borrow money to produce goods Lacked incentive to produce because people didn’t have money to buy goods Rise in unemployment As production decrease jobs were cut Further cuts in production Unemployment grew, incomes shrank, consumers spend less and less, production decreases
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Impact on workers and farmers No money and little incentive to produce led to factories closing Thousands of people lost their jobs 1931 Henry Ford shut down factory in Detroit- 75,000 people out of work Factories closing led to small business closing Farm prices fell Wheat 1929-$1.18/bushel, 1932 $ 0.49 Cotton 1929- $0.19/lb, 1932 0.065/lb 1932- 12million were unemployed, 25% of labor force GNP went from $103 billion to $56billion
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Impact on the world Other nations depended on the US for markets, investments and loans After WWI- US insisted that allied countries pay their war debts Import taxes were high Were unable to sell goods in the US Had to rely on Germany’s reparations
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Impact on the World If US invested in Germany reparations continued But investments failed German banks failed, suspended reparations Allies stopped paying debts Industrial production fell in Europe 40% in Germany 14% in Great Britain 29% in France
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Causes of the depression Stock market crash did not cause the depression Result of underlying problems with US economy Wealth was unevenly distributed Most of wealth in hands of a few families Industry produced more goods then needed Farmers and workers did not share in the economic boom
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Causes of the Depression Overspeculation People bought stocks on collateral- item of value that a borrower agrees to forfeit to the lender if the borrower cannot repay the loan Stock market boom was on borrowed money Federal Reserve System (regulates amount of money in circulation) Cut interest rates to bring growth Then limited money to discourage lending Too little money in circulation to help recover from crash
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