Transcript Only a Fool Holds Out For Top Dollar

Only a Fool Holds Out For Top
Dollar
Ch 22 Sec 1
Clouds on the Horizon
• 1920’s wild economic boom ensured hard
crash
• Unregulated economy combined with
overzealous investors
– A slowing economy ignored
• Industry
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Large corporations profits continually shrank during decade
Energy companies slowed following WWI & new competition
Housing starts slowed
New homes lead to many job opportunities for multiple
industries
– Agriculture
• Massive increase of production lowered prices
– Farmers no longer could afford to pay back loans &
defaulted
» Caused banks to lose vast amounts of money
• Price supports
– Plan to have government buy excess food at set cost
to give stability to farmers incomes
– Vetoed by President Coolidge twice arguing that it
was un-American & anti-capitalist
– Consumers spending on borrowed time
• Consumer spending
– 1925-1929 rising prices, stagnating incomes led to
Americans spending more than they made
• Credit
– Many consumers turned to credit to buy items but
pay later w/ interest charges
– Large debts by American families led to a reduction
in buying
– The wild bull in the stock market
• Individuals bought into stock market as a way to make
quick cash (speculation)
• Massive stock purchases caused the Dow Jones
Industrial Average (30 largest companies in America)
to soar…causing more people to buy into the market
– Consequence—stocks became valued more than what they
were really worth on buying frenzy
• Buying frenzy led to individuals buying stocks on
margin
» Placing 25% money down to purchase stock and borrow
the rest of the money
– Consequence—people invested life savings (hard
money) into overvalued stocks (paper money)
• If stocks fell, people would lose their hard money
The Storm
• Stock Market crashes as investors become very
nervous
– Investors realized that stocks and the US economy
was “overvalued”
• Worth more on paper than in hard money
• Black Tuesday 10/29/29
– 16.4 million shares sold in one day
• As stock values fell, people who bought stocks at high
price sold at low value, losing money
– Two weeks later, the NYSE lost $30 billion in value
The Collapse
• Banks
– People rushed to bank to pull hard money back
• Problem—many banks invested hard money in stock
market…losing it in the crash
• 1929—600 banks declared bankruptcy (1933 ½ of 25,000 banks
failed)
• Businesses
– Americans without any money cannot buy goods
• Lack of consumption leads to companies cutting production & jobs
– Unemployment—1929, 3%...1933, 25%
– American economy collapses as people out of work, can’t
buy items
• US Gross Domestic Product (all goods bought in US)
– GDP—1929, $104 billion…1933, $59 billion
• International economies
– European nations still struggling from WWI
relied on strong US economy to export goods
• Germany trying to repay massive WWI war
reparations
• US raises tariffs (Hawley-Smoot) to all-time high
– European countries cannot buy US goods
– US economic bust plunged world into economic
depression