Transcript The Great Depression

The Great Depression
The Party’s over
Twenties Prosperity
• Many Americans believed the post-war
economic boom had limitless growth.
• National income rose 43%, Production
72%, business profits 80%.
• People had more income to spend on
luxury goods
• Many Americans were encouraged to
invest in stocks (550 mil shares in 27;
1.1 bil shares by 29)
Foreshadowing a Depression
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The stock market crash was not the only
reason for the Great Depression.
Contrary to popular belief, unemployment
& poverty were on the rise and stocks &
crop production were dropping.
Contribution factors to Depression:
Republican economic policies; unchecked stock
speculation; weak banking institutions;
overproduction of goods; farming decline; unequal
distribution of wealth
Domestic Policies
• “Trickle-down Economics”- philosophy of
Republicans. Pro-business. Policies that benefit big
businesses will benefit all (Think about rain on a
pyramid).
• Tax cuts for rich would persuade them to reinvest in
the economy. In theory, If Bill Gates saves more money, he can afford
to pay his workers more, invest in better technology, and do more
philanthropic work.
• Sec. of State Andrew Mellon cut taxes for rich but
also raised taxes for middle/lower class to make up
for it.
• In reality, wealth did not trickle down. New
technology put more people out of work (machines)
Foreign Policy
• During WWI America lent $11 billion in loans
to Europe. After the war, most European
allies were in economic despair. Could not
pay back loans.
• America gave even more money to stimulate
European economy. This lead to more debt
(Germany pays France with our money, France pays us…with
our money).
• President also imposed higher tariffs on
imported goods to encourage American
business. Hurt foreign markets even more.
Real Estate Speculation
• Speculation- risky investment, in hopes of
making a quick profit.
• Investors bought up massive amounts of
land (sight unseen) in CA & FL to sell to
people moving there.
• Many people were scammed by investors
when buying uninhabitable land.
• Supply exceeded demand. Landowners could
not pay back banks.
Stock Market
• Investors believed stock market would
always go up. They would speculate which
company’s stocks would rise, buy a whole
bunch of that stock, then turn around & sell
at a higher price for quick investment. This
would continue. A company’s value was
being artificially inflated.
• Scams in the stock market as well; creating
a buying frenzy in generic company then
selling quickly.
• The final buyer would then realize the
company is not worth the sock price at all.
Stock Market (cont)
• Some economists predicted a fall in these
prices on the horizon. Companies’ stocks
were worth more than the companies’ output
• 1929- President Hoover began selling his
own stocks, stating, “possible hard times are
coming.”