The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s?...

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The Beginning of the GREAT DEPRESSION

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Page 1: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

The Beginning of the

GREAT DEPRESSION

Page 2: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

1. What was the general economic trend of the

1920’s?• 1920’s a decade of extreme economic growth

• Industries producing more consumer goods with more efficiently

• Unemployment: averaged 3%

Page 3: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

What is GNP?Sum total of all final goods and

services produced within a country during a specific time period (year).

Calculated by adding:Total wages and salaries +Profits of incorporated and unincorporated businesses +Rental incomes +Interest incomes = GNP

Page 4: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

3. What industry drove the expansion of the American economy in the 1920’s?

• 1919: 6.7 million cars in U.S.• 1929: 27 million cars in U.S. • 1929: 4 out of 5 American

families owned a car• 12.7% of American

manufacturing (1929)• 1 in 12 workers employed in

Auto industry

Page 5: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

Automobiles in the 1920’s

Page 6: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

The Stock Market• What is a

Stock?• A portion of ownership in a corporation• Increases in value based on success of business

Page 7: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

Many Americans buying on

CREDIT• 1920’s: Many Americans used credit buy consumer goods (cars, electronics)

• End of 1920’s: Credit was “drying up”– Americans had so much debt that

they couldn’t afford to continue purchasing

– Consumer sales decreased . . . Leading to decrease in profits of companies

Page 8: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

What is Buying on Margin?

Page 9: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

What did Roger Babson warn in September 1929?

 "Sooner or later a crash is coming, and it may be terrific." 

Page 10: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

3 Reasons for the “Crash”

• Inequality of wealth distribution• 70% made less than $2,000 per year. • Top 5% controlled 30% of economic wealth.

• Production overtook consumption• Businesses producing more than consumers

demanding (production efficiency/credit limits)• Businesses start reporting decreased profits

• Boom & Bust Cycle– “Boom” (increased buying of stocks) followed by

“Bust” (rapid decrease in value of stocks)

Page 11: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

“Boom to Bust”Stock Market

“Bubble”• Shares of stock rising because of so many investing in stock market (high demand) . . . NOT based on the actual earnings of the stock/business.

• Stock prices became artificially high (“bubble”)

• As corporations reported lower earnings, investors start cashing in stocks.

• Other investors panic & try to sell . . .

Page 12: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

Selling leads to…

THE STOCK MARKET CRASH

Page 13: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

“BLACK THURSDAY”Thursday October 24,

1929• Investors begin selling stocks leading to plummeting (falling) price of stocks.

• 12.9 shares of stock sold• Panic stops when group of

6 bankers “pool” their money & buy stocks.

Page 14: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

“Black Thursday” leads to anxiety and fear in

Americans

Page 15: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

Stocks stabilize on Friday & Saturday

Monday October 28, 1929• More investors start to pull out of

stock market. Market decreases 13%

Page 16: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

“Black Tuesday” Tuesday October 29, 1929

• Investors “panic” that stock prices are decreasing…

• Investors sell over 16 million shares of stock . . . Stock Market decreases another 12%

Page 17: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.
Page 18: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.
Page 19: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

Video on the Crash of 1929

http://www.youtube.com/watch?v=iLnDPntfNFw

http://www.youtube.com/watch?v=iLnDPntfNFw
http://www.youtube.com/watch?v=iLnDPntfNFw
Page 20: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

The

Great Depression

Page 21: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

Causes of the Great Depression

1. Stock Market Crash of 1929 • $40 Billion dollars in stockholder money

gone• Led to decrease in confidence. • Investors & businesses less likely to invest

• Banks had invested money in the stock market & lost it

Page 22: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

Causes of the Great Depression

2. Lack of diversification in the economy

• 1920’s prosperity depended largely on construction & automobile industry

• Late 1920’s: construction & auto industries declining

• Construction: 1926: $11 Billion 1929: $9 Billion

• Automobiles: Decreases 33%

Page 23: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

3. Extremely unequal distribution of wealth leads to overproduction.• Wages didn’t rise in proportion to manufacturing

productivity (Manufacturing increases/consumption decreases)

• 71% of Americans live on below $2,500 per year– Americans too poor to buy the goods

American industry is producing

Americans stop purchasing Businesses decrease production Workers eliminated Raising unemployment

Causes of the Great Depression

Page 24: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

4. Credit & Investment• Farmers heavily in debt to banks for land

& equipment– Crop prices decrease (86%) Farmers unable

to repay loans Farms foreclosed . . . Unemployed farmers

Causes of the Great Depression

• Investors who had “bought on margin”• Lenders “call in” loans . . . Investors go broke and default or lost investments

• Banks investing deposits in the stock market• Loose money. Constrict credit. Bank runs. Bank

failures

Page 25: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

5. Destabilizing of American/European Trade

• After WWI, Europe reliant on American agriculture & manufacturing. Part of reason for U.S. economic growth of 20’s.

• European demand for American goods declines in late 1920’s. – European manufacturing & agriculture rebuilding – European economic troubles due to post-War debt

Causes of the Great Depression

• Hawley-Smoot Tariff (1930)- American protective tariff against foreign goods.- 33 foreign governments react by raising tariffs on

U.S.- Fewer exports fewer goods sold decreased

production Decreased profits Rising unemployment

Page 26: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

The

Effects of the

GREAT DEPRESSIO

N

Page 27: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

What happened to many banks?

• Many banks “speculated” in the Stock Market in 1920’s (Invest w/depositors $)

• After the Crash, some banks closed because they lost depositors savings in the 1929 Stock Market Crash.• Fear & uncertainty leads to . . .

BANK RUNS

Page 28: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

What is a Bank Run?When a large number of people withdraw their money from a bank at the same time out of fear the bank will “go under”

Bank Run:

Page 29: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

• 1929 – 1933: 9,000 banks close• Depositors lost $2.5 Billion• Banks stopped lending money & calling in loans

Page 30: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

What happened to farms?• Many farmers in debt to

banks for land & equipment• Price of agricultural goods

decreases Decreased income for farmers

Page 31: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

• Thousands of farmers unable to make payments to banks for land/equipment loans• 1933: 364,000 farms foreclosed on

Page 32: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

The Dust BowlTo make matters worse . . .

• Irresponsible farming practices• Drought• Wind storms lead to dust storms

Page 33: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.
Page 34: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

What happened to employment?

• As GDP fell, unemployment increased

• 1930: 4.2 million unemployed (9%)• 1933:12.6 million unemployed (25%)

Page 35: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

What was the unemployment rate in Harlem in 1932?

50%

Page 36: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

What was life like for the unemployed?

“They hung around street corners and in groups. They gave each other solace. They were loath to go home because the were indicated, as if it were their fault for being unemployed. A jobless man was a lazy good-for-nothing. The women punished the men for not bringing home the bacon, by withholding themselves . . . The men suffered from depression . . . They were ashamed of themselves . . . They avoided home.” – Nathan Ackerman (Psychiatrist)

Page 37: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.
Page 38: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.
Page 39: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.
Page 40: The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s? 1920’s a decade of extreme economic growth Industries producing.

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