Transcript Questions to consider…

The Nation’s Sick Economy
Chapter 14, Section 1
The Great Depression Begins
Questions to consider…
• What groups of Americans will be
most hurt by the economic crash?
• What jobs might you consider to be
depression proof?
• What can you do to find a paying job?
Objectives
• Summarize the critical problems threatening
the American economy in the late 1920’s
• Describe the causes of the stock market crash
and the Great Depression
• Explain how the Great Depression affected the
economy in the United States and throughout
the world
1. Industries in Trouble (p.11)
Superficial prosperity of the 1920s hid the
signs of economic decline in USA.
– Railroads, textiles, and steel.
– Mining and lumbering
– Automobiles, construction, and consumer goods
– Housing starts (the number of new homes being
built) decline, i.e., furniture, carpeting, appliances,
paint, roofing, plumbing, electrical, masonry, etc.
also decline.
2. 2. 2. Agriculture
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•
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•
During WWI crop prices steadily rise as
international demand soars
Farmers plant more and borrow money to buy
land and equipment to meet the demand
Demand and prices falls after the war
Annual farm income drops from $10 billion to $4
billion; as farmers can’t pay loans some banks
close
• Congress’ McNary-Haugen bill calls for pricesupports - Government buys surplus crops at
guaranteed prices.
Wholesale Prices of Selected
Commodities
3. Consumers Have Less Money to Spend
a. Farmers and industrial workers
and others have less money to
spend due to their falling incomes;
b. Rising Prices, Stagnant wages,
Overbuying on credit are all having
negative impacts on the economy.
3 (cont.) Living on Credit
•Many during the 20s were living beyond
their means due to the emergence of…
•Credit – buy now, pay later
•Easy credit creates large consumer debt
•Faced with debt, consumers stop spending
which has obvious negative ramifications
for businesses.
4. Uneven Distribution of Income
1929 Income Distribution
29%
$1,999 and under
$2,000-$4,999
5%
$5,000-$9,999
1%
65%
$10,000 and over
4. Uneven Riches
a. “Rich get richer, poor get poorer”
• 70% of the nation’s families earn less
than $2,500.00 per year
• Products are out-of-reach
–One outfit per year
• ½ homes in cities have electric lights or a
furnace for heat.
6. How did popular perceptions of
prosperity influence the election of
1928? Herbert Hoover (4 time
Governor of NY was the Republican
candidate; Alfred E. Smith was the
Democratic candidate. Hoover relied
heavily on years of national prosperity
under former Republican Presidents as
he was quoted…
“We in America are nearer to
the final triumph over poverty
.”
than ever before
Keep the good times rolling with
The Republican party!
Hoover won the election in a
landslide victory & became the
31st President. Despite the
hopeful mood economists
warned of weaknesses in the
economy (7)…
Stock Market Dreams
– Most visible symbol of America’s prosperity
8. Dow Jones Industrial Average is a measure
based on the stock prices of 30 prosperous
companies trading on the New York Stock
Exchange.
9. Bull market is a period of rising stock prices
(pulls many who think they will get rich quick
into the market); opposite is bear market
with falling prices.
• In 1929, 4 million or 3% owned stock
1920-1929 Dow Jones
The Stock Market Crash
* Not a 1 or 2 day event
13. Wall Street
Oct. 29, 1929
14. "Black Tuesday”…
The Stock Market Crash
• Through Sept. 1929 stock prices peaked & fell causing
confidence in the stock market to waver; some quickly
sold their stocks pulled out;
• Oct. 24 – another plunge in prices; many more
investors panic & sell out;
• On October 29 “Black Tuesday” market crashes as a record
16.4 million stocks are dumped & millions more wanted to
sell but there were no buyers. Margin buyers could not pay
loans; millionaires lost fortunes.
• The market crash is followed by The Great Depression (from
1929-1940 when the economy plummeted & unemployment
skyrocketed) #16.
• 15. The Market crash made the economy collapse faster &
made the depression more severe.
Banks Fail (17)
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•
•
•
Run on the banks
Banks invested in the stock market
In 1929, 600 banks closed
By 1933, 11,000 of the country’s 25,000 banks
had failed
• No government protection or insurance
• Millions lose savings
•
Its a Wonderful Life
Last summer in Greece
How Banks Create Money
How banks make money
Why does it work?
• Banking is all about trust.
• While people are putting money into the bank
every day, the bank is lending that same money
and more to other people every day.
• If everyone goes to the bank at the same time
and demands their money (a run on the bank),
there might be problem.
Today how safe is your money?
That "FDIC" logo you see as you walk in the door
means that you hold insurance on your deposits.
Depositors are typically protected for up to $100,000.
Banks also carry private banking insurance -specially designed private coverage to protect
deposits in the case of burglaries, robberies,
vandalism, etc.
Businesses Fail (17)
• Between 1929-1932, the GNP – the nation’s total
output of goods and services – was cut in ½ from
$104 billion to $59 billion.
• 90,000 businesses go bankrupt
• Unemployment jumped 3% (1.6 million) to 25%
(13 million)
• 1 in 4 Americans out of work
• The rest faced pay cuts and reduced hours
The impact of the Wall Street Crash…
· 12M people out of work
· 20K companies bankrupt
· 1600 banks close
· 1 in 20 farmers evicted
· 23K suicides in one year–highest ever
All of the above become issues in the
Great Depression.
Recession
A recession is a business cycle in which economic activity slows
down.
1. Recessions occur when there is a drop in consumer spending.
2. Production (GNP – the sum total of all products & services
produced in a given year), investment, household incomes,
business profits & inflation fall.
3. Increased bankruptcies; Unemployment rises.
4. Governments response: Increase money supply, increase
government spending; decrease taxation.
5.
The best recession-proof jobs are those that are least
sensitive to economic downturn, and have the highest pay,
projected workforce growth, and number of openings.
6. Recession proof jobs
Depression
A depression is a sustained, long-term downturn
in economic activity in one or more economies
(countries).
A depression is characterized by:
- Lasting a long time
- No buyers…suppliers cut production
- Large increases in unemployment
- No availability of credit
- Price deflation
- Bank failures
Worldwide Shock Waves (19)
• Europe
– Costs of rebuilding
– High debt
– German war reparations
• The depression compounded these
problems by limiting America’s ability to
import European goods
• This in turn made it impossible to sell
American products abroad. World trade
slowed & unemployment rose globally.
Hawley-Smoot Tariff (20)
• 1930 passed by Congress as a protective tariff
• Designed to keep out foreign competition but
had the opposite effect;
• Since foreign goods were not selling in the US it
prevented other countries from earning American
currency to buy our goods… SO…
• Unemployment grew worse in export industries
• Foreign Countries retaliate & raise their taxes and
• World trade falls by 40%!!!!
Global Effects of the Depression
• American investors withdraw $ from Europe
• World trade plummets and unemployment
skyrockets
• Germany and Austria extremely hard-hit
• In Asia, farmers and workers suffer as exports
drop by ½
• Demand for Latin American products like
sugar, beef, and copper collapse
Global Effects of the
Depression
How might a depression of
this world scale contribute
to the rise of dictators like
Hitler and Mussolini?
S.H.O.W. U
The causes of the Great Depression…
•Stock market crash & financial panic
•High Tariffs limiting trade
•Over production in industry
•Weak agricultural economy
•Unequal distribution of wealth
Hoover
encourages
Americans to
remain
confident..
BUT the Great
Depression
brought
hardship
suffering that
Americans
would never
forget (more
on that in
Section 2).