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1) What nickname was given to the day the stock market collapsed on October 29, 1929? 2) How many U.S. banks collapsed by 1933? 3) Define “rugged individualism”(p. 479). 4) What is a shantytown? 5) What is “direct relief” AND why did Pres. Hoover not believe in it (p. 479)?
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1) Black Tuesday. 2) 11,000 of 25,000 U.S. banks failed. (Also had 25% of population unemployed. That’s about 13 million workers) 3) It is the job of individuals to take care of themselves and their families. It’s not the governments job. 4) Little towns consisting of shacks. People lived in whatever they could find. 5) Direct relief: cash payments or food provided by the government to the poor. “Freebies.” Hoover believed in “rugged individualism.”
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Students will… 1. Understand how the Great Depression affected the United States. 2. Investigate the impact of the Great Depression on the United States and analyze the major causes of the Great Depression. 3. Identify the problems and mistakes of Americans living on credit.
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Use pages 464-466 to answer the following “Why did” questions: 1. Why did key basic industries lose business? 2. Why did the coal mining industry suffer? 3. Why did businesses fail after housing fell off? 4. Why did the farming industry grow weak? 5. Why did more Americans start living on credit? 6. Why did the uneven distribution of income affect producers of goods?
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1) Drop in industry: steel, textiles, mining, lumber, housing industry. 2) Overproduction of crops and inability to pay farm loans. 3) The availability of easy credit: living beyond their means. 4) Consumers buying less goods due to high prices and low wages. 5) Unequal distribution of income: the rich got richer, the poor got poorer. 70% of families earned less than $2,500 per year (poverty level). NOTE: The collapse of the stock market did NOT cause the Great Depression!! Instead, the depression caused the stock market to crash.
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Law of supply and demand: A) Prices on goods increase when demand is high and supply of goods is low. *Example: AC/DC concert in Vegas next month. Regular ticket price was $75. Sold out the first day. StubHub ticket price is $240. B) Prices on goods decrease when demand is low and supply of goods is abundant. *Example: Trucks/SUV’s 6 years ago; housing industry 6 years ago.
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Key basic industries like railroads, textiles, and steel had barely made a profit during the 1920’s (post WWI). Many industries overproduced goods and had a large supply to get rid of=lost $ on production. Railroads were losing out to new forms of transportation (trucks, buses, and automobiles). Mining and lumbering were in less demand after WWI. Coal mining took a back seat to hydroelectric power, fuel oil, and natural gas. The housing industry slowed down since less people were building houses. When housing slows, so do jobs in related industries, like cement, lumbering, furniture, landscaping, roofing, etc.
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During WWI, prices rose and demand for crops such as wheat and corn soared. Farmers had planted more and taken out loans to buy land, seed and new equipment. Demand fell after WWI, and crop prices declined by 40% or more. Farmers boosted production in hopes of selling more, but this caused crop prices to decline even more. Farmers defaulted on their loans, rural banks began to fail, and auctions were held to recover some of the bank’s losses.
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Credit (installment plan)=buy now, pay later. Must pay for the price of the purchased good + interest. Credit was easily available and, so Americans racked up a large consumer debt. Credit is easier to use than saving cash for months or years to buy the desired product. Failure to pay loan=repossession AND everyone’s interest rates increase.
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Americans were buying less mainly because of rising prices, lower or stagnant wages, and over buying of goods on credit in the preceding years. Factories overproduced goods, but the American consumers could not afford to purchase the goods that flooded the market.
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The middle and lower class wage workers got poorer and poorer due to a large labor force available to work for low wages. About 3/4 of American families were earning less than $2,500 a year and were living below the poverty level. Who is going to buy the modern goods flooding the American markets?
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1) What is the Dow Jones Industrial Average? 2) What is buying on margin? 3) What is the main problem with buying stock on margin? 4) What is the largest market in the world where stocks are exchanged? 5) How much money was lost by investors in the stock market by mid-November of 1929?
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health 1) Measures the stock prices daily of the 30 largest business firms to determine the health of the stock market. Big companies like General Motors, Goodyear, IBM and Exxon are the kinds of companies that make up this index. 2) Investors paid just a down payment on stock, usually 10 %, and borrowed the rest. 3) If the stock lost money, the people had no way of paying off the loan. 4) New York Stock Exchange. 5) $30 billion.
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http://money.cnn.com/data/us_markets/?iid=MKT_Sub (Stock Market Example) http://money.cnn.com/data/us_markets/?iid=MKT_Sub Golden Eagle Mining (MYNG)
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At some point, just about every company needs to raise money, whether to open up a West Coast sales office, build a factory, or hire a crop of engineers. In each case, they have two choices: 1) Borrow the money, or 2) raise it from investors by selling them a stake (issuing shares of stock) in the company. When you own a share of stock, you are a part owner in the company with a claim (however small it may be) on every asset and every penny in earnings. XYZ Corp., for example, may have 2 billion shares outstanding, and a stock price of $10. So the company's total market capitalization is $20 billion. (Technically, if you had an extra $20 billion lying around, you could buy each share of stock, and own the whole company.)
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The New York Stock Exchange The largest and most prestigious exchange in the world is the New York Stock Exchange (NYSE). The "Big Board" was founded over 200 years ago in 1792 with the signing of the Buttonwood Agreement by 24 New York City stockbrokers and merchants. Currently the NYSE, with stocks like General Electric, McDonald's, Citigroup, Coca-Cola, Gillette and Wal- Mart, is the market of choice for the largest companies in America.
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The NYSE is the first type of exchange (as we referred to above), where much of the trading is done face-to-face on a trading floor. Also referred to as a listed exchange. Orders come in through brokerage firms that are members of the exchange and flow down to floor brokers who go to a specific spot on the floor where the stock trades. At this location there is a specific person known as the specialist whose job is to match buyers and sellers. Prices are determined using an auction method: the current price is the highest amount any buyer is willing to pay and the lowest price at which someone is willing to sell.
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The Nasdaq The second type of exchange is the virtual sort called an Over the Counter (OTC) market, of which the Nasdaq is the most popular. Trading is done through a computer and telecommunications network of dealers. It used to be that the largest companies were listed only on the NYSE while all other second tier stocks traded on the other exchanges. The tech boom of the late '90s changed all this; now the Nasdaq is home to several big technology companies such as Microsoft, Cisco, Intel, Dell and Oracle. This has resulted in the Nasdaq becoming a serious competitor to the NYSE.
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The Dow Jones Industrial Average is the average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. If these 30 stocks are doing well then the entire stock market is probably doing well. If these 30 stocks are doing poorly then the entire stock market is probably doing poorly.
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1. Stocks were Overpriced: Speculation caused stocks to be overpriced. Basically, stocks prices were inflated.
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2. Massive Fraud and Illegal Activity: A number of people believe that fraud and illegal activity was one of the causes of the 1929 Crash. No agency was responsible for regulating the stock market.
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3. Buying On Margin: Margin buying is another scapegoat for the cause of the Crash. However, it is not the main reason because just the middle socio- economic class was participating in margin buying. Margin Buying=Pay just 10% the worth of the stock so more stock could be bought. Pay off the remaining 90% when the stock was sold.
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4. Federal Reserve Policy: The new President of the Federal Reserve Board Adolph Miller tightened the monetary policy and set out to lower the stock prices since he perceived that speculation led stocks to be overpriced, causing damage to the economy. Also, starting from the beginning of 1929, the interest rate charged on broker loans rose tremendously. This policy reduced the amount of broker loans that originated from banks and lowered the liquidity of non- financial and other corporation that financed brokers and dealers.
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5. Public Officials' Repeated Statements: Many public officials encouraged American citizens to invest in the stock market. A fast and easy way of getting rich…kind of the new American dream. These kinds of statements encouraged investors to believe that the market would continue to be strong, which could be one of the causes of the Crash.
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Write your answers to the following questions on a piece of paper and turn it in before you leave: 1. List and briefly explain the 5 causes of the Great Depression. 2. What dangers exist from buying goods on credit? 3. True/False. The collapse of the stock market caused the Great Depression.
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