The Great DepressionThe 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

• 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.”