U.S. History 18 November 2015 Warm-up Price Support Credit Alfred. E. Smith Dow Jones Industrial Average Speculation Buying on margin Black Tuesday Hawley-Smoot Taffiff Act Objective Summarize problems threatening the American economy in the 1920s Describe the cause of the stock market crash and the Great Depression Explain how the Great Depression affected world economies THE GREAT DEPRESSION BEGINS Photos by photographer Dorothea Lange SECTION 1: THE NATIONS SICK ECONOMY Agriculture Railroads Textiles Steel Mining Lumber Automobiles Housing Consumer goods As the 1920s advanced, serious problems threatened the economy while Important industries struggled, including: FARMERS STRUGGLE No industry suffered as much as agriculture During World War I European demand for American crops soared After the war demand plummeted Farmers increased production sending prices further downward Photo by Dorothea Lange Farmers Needed a Lift Congress tried to help with the McNary-Haugen Bill This called for federal price-supports for wheat, corn, cotton and tobacco The government would buy surplus crops and sell them on the world market Coolidge vetoed the bill twice Photo by Dorothea Lange CONSUMER SPENDING DOWN By the late 1920s, American consumers were buying less Rising prices, stagnant wages and overbuying on credit were to blame Most people did not have the money to buy the flood of goods factories produced GAP BETWEEN RICH & POOR The gap between rich and poor widened The wealthiest 1% saw their income rise 75% The rest of the population saw an increase of only 9% More than 70% of American families earned less than $2500 per year Photo by Dorothea Lange HOOVER WINS 1928 ELECTION Republican Herbert Hoover ran against Democrat Alfred E. Smith in the 1928 election Hoover emphasized years of prosperity under Republican administrations Hoover won an overwhelming victory Young Hoover supporter in 1928 THE STOCK MARKET By 1929, many Americans were invested in the Stock Market The Stock Market had become the most visible symbol of a prosperous American economy STOCK PRICES RISE THROUGH THE 1920s Through most of the 1920s, stock prices rose steadily The DowJones reached a high in 1929 of 381 points (300 points higher than 1924) By 1929, 4 million Americans owned stocks About a half a million were active buyers. New York Stock Exchange The most striking characteristic of the stock market of the 1920s was Speculation buying stock and bonds on the chance of making a quick profit risk ignored. -People bet their savings to strike it rich. -Corporations used their cash reserves. Much of their credit did not go into solid investment, but instead into the stock market. -Prices of stock did not reflect the companies worth. Investors could play on the market on credit. Buying on margin paying a small percentage of a stocks price and borrowing the rest. Buying and selling was not regulated Government did nothing to discourage such buying or selling or to regulate the market. THE 1929 CRASH In September the Stock Market had some unusual up & down movements On October 24, the market took a plunge...$10 billion in market value vanished. The Market crashed. On October 29, now known as Black Tuesday, 16.4 million shares were sold that day prices plummeted the bottom fell out of the market. Run on the Bank By mid-November, investors had lost about $30 billion The Stock market crash signaled the beginning of the worst economic collapse in the history of the modern industrial world. The crash of the stock market is not the only cause of the Great Depression. It sped up the collapse of the economy and made the depression more severe. The Stock Market Crash Causes Speculation Buying on margin Falling stock prices Lack of confidence Effects Loss of savings Bank failures Bankrupt businesses High unemployment CAUSES OF THE GREAT DEPRESSION Tariffs & war debt policies In 1930, Congress passed the toughest tariff in U.S. history called the Hawley- Smoot Tariff It was meant to protect U.S. industry yet had the opposite effect Effects of the tariff policies: 1. USA could not import cheaper European goods. Prices high people could not buy a lot. 2. Tariff prevented other countries from earning American currency. They could not buy American goods. 3.Other countries retaliated enacted their own tariffs - it became difficult to sell American farm products and manufactured goods abroad. 4.Industries could no longer export goods unemployment rose. 5. Soon world trade fell 40% 6. Germany suffered hyperinflation. GNP DROPS, UNEMPLOYMENT SOARS Between , the U.S. Gross National Product (GNP) the total output of a nations goods & services fell nearly 50% from $104 billion to $59 billion 90,000 businesses went bankrupt Unemployment leaped from 3% in 1929 to 25% in 1933 FINANCIAL COLLAPSE 1.After the crash, many Americans panicked and withdrew their money from banks 2. A lot of people did not get their money since Banks had invested in the Stock Market and lost money. In banks failed By 1933 11,000 of the 25,000 banks nationwide had collapsed Bank run 1929, Los Angeles Money in Circulation Source: U.S. Bureau of the Census, Historical Statistics of the United States YearMoney in Circulation (in billions of $) 1929$ $ $ $ $19.2 1 The Nations Sick Economy 1. List the causes and effects of the 1929 stock market crash. continued... HOME ASSESSMENT Speculation Buying on margin Falling stock prices Loss of confidence Loss of savings High unemployment Bank failures Stock Market Crash Cause Effect Bankrupt businesses GRAPH Millions of people lost their savings because federal government had not insured or protected in any way their savings accounts! THE GREAT DEPRESSION The Stock Market crash signaled the beginning of the Great Depression The Great Depression is generally defined as the period from 1929 1940 in which the economy plummeted and unemployment skyrocketed The crash alone did not cause the Great Depression, but it hastened its arrival Alabama family, 1938 Photo by Walter Evans DESPERATE FOR CASH Depression Indicators Examine the 4 charts on page 470 In what year did the biggest jump in bank failures occur? What measure on the graphs seems to indicate an improvement in the economy? What might explain this? Write a paragraph Write about how the economic trends of the 1920s helped cause the great depression Think about: What happened in industry What happened in agriculture What happened with consumers This weeks theme The more you take responsibility for your past and present, the more you are able to create the future you seek. This weeks theme It is not enough to have a good mind; the main thing is to use it well. This weeks theme Be more concerned with your character than your reputation, because your character is who you are while your reputation is merely what others think you are.