Transcript Boom and Bust

Boom and Bust
Causes, Effects and
Responses to the Great
Depression
OVERVIEW
In this lesson you will examine:
• The social and economic context before the
Great Depression
• The causes of the Great Depression
• The effects of the Great Depression
• Early attempts at addressing the crisis
The Boom
• America was the leading industrial power left
untouched after the Great War
• After switching from wartime production to
industrial production, the US economy soared
while Europe struggled
• A new era of prosperity was fuelled by readily
available credit
The Roaring Twenties
Increased credit allowed:
• Companies to increase
production; American
consumer products flooded
domestic and world markets
• More working class
Americans to buy more
consumer products
• The middle class more time to
engage in cultural activities
like jazz
The First Signs
Beneath the appearance of prosperity were
fundamental problems:
• Worker wages did not increase with the increase in
production – loss of buying power
• American agriculture was hit by overproduction and
environmental problems – loss of productive market
• American protectionism resulted in increased tariffs on
foreign exports – loss of foreign markets
The First Signs
The First Signs
“Buying on Margin”
If the share
If the share
price goes up,
price goes
the worker can
down, the
sell the stock
worker still
for profit and
owes the
the broker gets
broker
its loan back
Dangerous financial practices contributed to the
Great Depression; in particular,
people were
Company
X
Broker
to
encouraged
to
buyoffers
stocks
“on margin”
NO
LOAN
LOAN
RETURNED
PAYBACK
Worker has
$10 and
wishes to
buy 10
shares of
Company X
lend money based
on the stock’s
margin or
projected growth
STOCK
PRICE PER
SHARE:
$11
SHARE DIVIDEND
NO DIVIDEND PAYOUT
Worker’s
total
holdings:
$110
$220
$50
The Crash
• Confidence in the market became shaky by
September 1929 because of speculation – e.g.
RCA stock in Mar 1928 was around
$100/share and by Sept 3, 1929, it was
$500/share
• On Monday, Oct 28, 1929, stockholders began
to sell their shares
• On “Black Tuesday”, Oct 29, 1929, share
values dropped drastically by as much as 37%
causing a chain reaction throughout the economy
Loss of share values
spread throughout the
economy
Workers became
unemployed and unable
to buy products or
borrow money
Corporations could
not continue
production without
income or credit
Workers could
not pay back
their loans to
brokers
Stockbrokers
could not return
their loans to
the banks
Banks were unable to
loan out money because
no one could return their
loans
The Effects of the Crash
• Between 1929 to 1932,
American unemployment was
around 25-30%
• The working and middle classes
saw their assets and investments
wiped out overnight
• Those who owned real estate or
had non-liquid assets were not
as affected
• Soup and bread lines grew
around churches and charities
for free hand-outs
• The homeless built
“Hoovervilles” on public
property or by railroad tracks
They used to tell me I was building a dream
And so I followed the mob
When there was earth to plow or guns to bear
I was always there, right on the job
They used to tell me I was building a dream
With peace and glory ahead
Why should I be standing in line
Just waiting for bread?
Once I built a railroad, made it run
Made it race against time
Once I built a railroad, now it's done
Brother can you spare a dime?
Once I built a tower to the sun
Brick and rivet and lime
Once I built a tower, now it's done
Brother can you spare a dime?
Once in khaki suits, gee we looked swell
Full of that yankee doodle dum
Half a million boots went sloggin' through hell
And I was the kid with a drum
Say, Don't you remember they called me Al?
It was Al all the time
Say, don't you remember, I'm your pal
Brother, Can You
Spare a Dime?
Early responses
• The Smoot-Hawley Tariff
increased the duties on foreign
imports
• President Hoover took minor
steps to address the crisis:
attempts to increase credit, tax
reductions and public works –
seemed ineffective
• People at first did not protest,
but as the crisis grew, so did
discontent
SUMMARY QUESTIONS
• What stimulated the American economy towards its
“boom”?
• What effects did increased prosperity have on
American culture?
• What signs were present that the American economy
was not stable?
• What factors caused the failure of the financial
system and the subsequent stock market crash?
• What were the effects on American society and how
did the government respond?