Transcript The Bull Market

The Crash,
Great Depression
&
New Deal
“No event of the twentieth
century had a more profound
impact on American life”
Hard
Times
Herbert Hoover
• Republican
• Iowa
• 1929-1933
Objective
Identify & explain the
causes of the 1929
stock market crash.
Watching
the ticker
tape at the
height of
the bull
market.
Stock Market
Simulation
Trouble Signs
• Speculation – buying stocks and bonds on the
chance of a quick profit, while ignoring the
risks.
– Stocks - Owning stocks in a company makes you
part owner of that business. If the company is
successful the value of the stocks will rise or it will
be able to pay a higher annual dividend. The
better the company does, the better the investor
does.
– Bonds - Governments, states, corporations and
many other types of institutions sell bonds. It is a
promise to repay the principal or cost price along
with the interest on a specified or maturity date.
Trouble Signs
• Buying on Margin – paying a small
percentage of the stock’s price as a down
payment and borrowing the rest.
• The government did little to regulate the
market
• The reality was that these upward spiraling
prices did not reflect the true value of the
companies
• If stock prices decreased, people buying
on margin had no way of paying off their
loans
The Bull Market
Stock prices
increase 2x
the rate of
production
Interpret the following quote…
“In effect, the automobile of American
capitalism had one foot pressed to
the accelerator of production and
another on the brake of
consumption.”
The Bull Market
The average
American’s attitude
about the future of
the stock market….
The
Bear
Market
A prolonged period
in which investment
prices fall,
accompanied by
widespread
pessimism.
The Bull Market
• Stock prices rise in the 20s
• The market is viewed as a
get rich quick opportunity
• The basic concept of the
stock market…
The Bull Market
• Two ways to make money
in the market:
•Long term investment
(Dividends & reinvestment)…
•Speculation…
4) Margin buyers… Risky?…
The Bull Market
2) Weakness developing within the
market?...
Paper value outran real value
# of Americans owning stock?
4 million out of 120 million = 3%
The social
elite
watching the
ticker tape at
the height of
the bull
market.
The Crash
* Not a 1 or 2 day event
Oct. 29
“Black Tuesday”…
Wall
Street
“Black
Tuesday”
1929
The Crash
The Crash
The Causes of the
1929 Market Crash
• Confidence in investment growth
waned, end of the BULL
• PANIC… with no buyers
• Speculation & margin debt based
on easy credit collapses
• Lack of government regulation?
1920-1929 Dow Jones
1930-1939 Dow Jones
The Crash
• $30 billion wiped out
• Hoover, “the fundamental
business of America is sound”
• Andrew Mellon, “it will purge the
rottenness out of the
system…people will work harder
& be more moral.”
Objective
Summarize the
reasons why the
Great Depression
occurred.
Underlying Weaknesses
•
•
•
Productivity increased but
wages do not and reduces
consumption
Overproduction (farming)
Uneven distribution of wealth
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.
Consumers Have Less Money to
Spend
• Rising Prices
• Stagnant wages
• Uneven distribution of wealth
• Overbuying on credit
Uneven Distribution of Income
1929 Income Distribution
29%
$1,999 and under
5%
65%
$2,000-$4,999
$5,000-$9,999
1%
$10,000 and over
GNP
Gross National Product…
• 1929: GNP = $104 billion
• 1933: GNP = $56 billion
The total amount of goods &
services produced within our
economy
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 Repercussions, 1921-1933
Loans
US Banks
Wall St.
Reparations
Debt Payment
US Treasury
Global Effects of the Depression
• How might a depression of this world
scale contribute to the rise of dictators
like Hitler and Mussolini?
SHOW 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
Objective
Describe the
“human cost”
of the
Great Depression.
Mass Unemployment 1929–1945
Mass Unemployment
• 1930 = 4.2 million or 9%
• 1933 = 12.6 million or 25%
• What did it mean to be unemployed and
without hope in the early 30s?
– Self-loathing
– Despair
• Urban centers 50%
• African Americans 50%
• Deportation of Mexican immigrants
Human Cost
Social Impact
• Soup kitchens - Breadlines
• Homeless people
• Many traveled on railroads
as Hobos
Unemployment:
Men line up
outside an
employment
agency hoping
to find work.
The Homeless
What irony is expressed in his picture?
Human Cost
Impact on Health
• Hunger – Malnutrition
• Children suffer long term
health issues
• 3x normal # admitted to
mental hospitals
The later impact on
health…
• 50% of the men drafted
for World War II in
1940-41 were rejected
for medical or dental
reasons…
Poverty
brings
long term
health
effects for
children…
Where are we going?....
What does our future hold?....
Mortgage failures…
Penny auctions…
Mortgage
failures…
Human Cost
The Psychological Impact
• Undermines the traditional authority
of the male breadwinner
– Women work more cheaply
– Jobs likely survive hard times
• Male reaction
– Emotional withdrawal
– Violence
– Drinking
– Suicide rate between 1928-32 + 30%
Objective
Analyze President
Hoover’s philosophical
and leadership
response to the market
crash and depression.
Hoover’s beliefs…
• No Government involvement
• Private solutions
• “Rugged- Individualism” and
“Welfare is not useful for
society”
Hoover’s
beliefs…
Hoover’s beliefs…
• “The economy would fix
itself”
• “a temporary slump”
• This is “a business cycle”
Hoover and the Homeless
• Raised $15 million through radio campaign
• Built tent cities for 600,000 homeless –
“Hoovervilles”
• 1931 LA had 70,000 nonresidents, jobless, &
homeless men
– 1,200 arriving everyday
Hoover’s Actions
• 1931 President’s Organization for Unemployment
Relief (POUR)
– encouraged local groups to raise money to help the
unemployed
– Federal aid would only be a disservice
• He focused on restoring business confidence
– Reconstruction Finance Corporation (RFC)
• Provided gov’t credit to ailing industries like banks, RRs, etc.
to stimulate economic activity
• Problem was low consumer demand, not supply!
Protests of 1932
• Ford’s River Rouge Plant
– Communist organizers
– 4 killed & 50 wounded
• Farmers’ Holiday Association
– Raise prices by destroying food
• Bonus Army
– $1,000 due in 1945
– 20,000 camp in capital
– 2,000 linger and MacArthur reacts
Farmers’ Holiday Association Meeting
Bonus March Streaming Video
The WWI “Bonus Army”
“Bonus Marchers”
Bonus
Marchers
leaving…
• General
McArthur
directing
removal of
Bonus
Army
Mr. Hoover…
Hooverball
Hoover
encourages
Americans to
remain
confident
America’s Reaction to Hoover
• Democrats
– 1930 mid-term elections
• Win HoR for 1st time since 1916
• Gain 8 seats in the Senate
– 1932 nominate FDR
• Gov. of NY
• Pledges a new deal for the American people
• Overwhelming victory