The Nation’s Sick Economy

Industries in Trouble

• Key industries barely making a profit

• Mining and lumbering faced diminished demands

• Key industries barely making a profit

• Mining and lumbering faced diminished demands

• Big industries of the 20s began to weaken- cars, construction, consumer goods

• 1925-29-permits for new homes fell 25%

• Home construction is an important economic indicator

• Big industries of the 20s began to weaken- cars, construction, consumer goods

• 1925-29-permits for new homes fell 25%

• Home construction is an important economic indicator

Farmer’s struggling

• During war-international demand for crops soared

• Prices rose• Farmers planted more

crops & took out loans to buy more land & equipment

Farmers struggling

• To compensate for falling prices, farmers boosted production

• Made things worse• Farm income

decreased by $6 billion

• Farmers couldn’t pay loans

• Lost farms

• Rural banks failed

• Government wanted to help

• Proposed price supports

Price Supports

• McNary-Haugen bill proposed price supports-the support of certain prices at or above market value by the government

• McNary-Haugen bill proposed price supports-the support of certain prices at or above market value by the government

• 1. Govmt would buy surplus crops for more than the market rate

• 2. Govmt would sell products to rest of world for less than they were worth

• 3. pass tax on domestic food to make up for lost money

• Vetoed by President Coolidge twice

• 1. Govmt would buy surplus crops for more than the market rate

• 2. Govmt would sell products to rest of world for less than they were worth

• 3. pass tax on domestic food to make up for lost money

• Vetoed by President Coolidge twice

Consumers Have Less $ to Spend

• Farmers income fell

• Bought fewer goods

• By late 1920s-Americans buying less

• Why?– Rising prices– Stagnant wages– Unbalanced

distribution of income

– Overbuying on credit

Living on Credit

• People living beyond their means

• Credit-buy now, pay later

–Installment plan

• People living beyond their means

• Credit-buy now, pay later

–Installment plan

– Americans piling up large debt

– People cut back spending

– Americans piling up large debt

– People cut back spending

Uneven Distribution of Income

• Incomes not raising fast enough

• 1920s-half nation’s families earned $1,500/year

• 1920-1929 income of wealthiest 1% rose 75%

• Incomes not raising fast enough

• 1920s-half nation’s families earned $1,500/year

• 1920-1929 income of wealthiest 1% rose 75%

• American wages as a whole rose 9%

• 1929-wealthiest 5% took in 33% of nations income

• Poorest 40% earned just over 10%

• American wages as a whole rose 9%

• 1929-wealthiest 5% took in 33% of nations income

• Poorest 40% earned just over 10%

New President

• Herbert Hoover• Americans desired to

continue prosperity they experienced under Republican administrations

President Hoover

The Stock Market Comes Tumbling Down

• BY 1929-many economists warning of weakness of the stock market

• Most people had no idea there was a problem

• People continued to invest in the stock market

Dreams of Riches in the Stock Market

• Throughout 20s-stock prices rose steadily

• Many Americans rushed to buy stocks

• Many Americans hoping to get rich

Dreams of Riches in the Stock Market

• Many investors engaged in speculation– Made stock prices rise

• Made businesses look worth more than they were

Dreams of Riches in the Stock Market

• Many investors also began buying on margin

• This worked as long as prices rose

• If stocks declined there was no way to pay off the loan

Black Tuesday

• October 29, 1929- The bottom fell out of the stock market

• Known as Black Tuesday

• People and businesses tried to sell stocks before prices fell further

Black Tuesday

• People who bought stock on credit acquired huge debts

• Within weeks investors had lost $30billion

Causes of the Great Depression

• Old and decaying industrial base

• Crisis in the farm sector

• Easy credit

• Unequal distribution of income

Financial Collapse

• People panicked and withdrew all their money from banks

• Many banks lost their money in bad investments

• 659 banks closed in 1929

Financial Collapse

• By 1933-6,000 banks had closed

• Wiped out 9 million individual savings accounts

• 85,000 businesses went bankrupt

Financial Collapse

• Unemployment rose from 3% in 1929 to 25% in 1933

• Many that kept their job had to take a pay cut

Worldwide Shock Waves

• Congress makes things worse

• Pass Hawley-Smoot Tariff Act-highest tariff in U.S. History

• Supposed to help Americans from foreign competition

Worldwide Shock Waves

• Hawley Smoot Tariff Act- Reduced flow of good into the U.S.– Prevented other

countries from earning American currency

• Could not buy American exports

– Made unemployment worse

Worldwide Shock Waves

• Many European countries retaliated by raising their own tariffs

• Caused world trade to reduce by more than 40%