1. The Stock Market Crash 15.1

2. Background 1920s appeared to be a decade of prosperity = “The Roaring 20s” 1920s appeared to be a decade of prosperity = “The Roaring 20s” Some believed economic problems existed below the surface Some believed economic problems existed below the surface Most ignored these warnings Most ignored these warnings

3. Credit Confidence in nation’s prosperity led many to purchase goods on credit Confidence in nation’s prosperity led many to purchase goods on credit 1929: Credit purchases =$7 billion 1929: Credit purchases =$7 billion Government encouraged credit spending by keeping interest rates low Government encouraged credit spending by keeping interest rates low

4. Problems With Easy Credit Easy access to credit enabled people to buy things they couldn’t afford Easy access to credit enabled people to buy things they couldn’t afford Economic experts worried about debt Economic experts worried about debt High consumer debt could cripple people in an economic downturn High consumer debt could cripple people in an economic downturn

5. Bull Market A market with an upward trend in prices A market with an upward trend in prices Seemed no end to 1920s Bull Market Seemed no end to 1920s Bull Market Bear Market A market with a downward trend in prices A market with a downward trend in prices

6. Stock Speculation = Playing the market by buying and selling stocks to make a quick profit – becomes popular = Playing the market by buying and selling stocks to make a quick profit – becomes popular This stimulated economic growth This stimulated economic growth Rapid buying and selling inflated stock prices Rapid buying and selling inflated stock prices Could be a problem if demand decreased. Could be a problem if demand decreased.

7. Margin Buying = The practice of purchasing stocks with borrowed money = The practice of purchasing stocks with borrowed money Speculators often buying stock with 10% down – borrowing 90% Speculators often buying stock with 10% down – borrowing 90% Margin buying was great with a bull market But…. Margin buying was great with a bull market But…. Bear market would be investors deep in debt. Bear market would be investors deep in debt.

8. The Crash October 24, 1929: Black Thursday = The beginning of the crash October 24, 1929: Black Thursday = The beginning of the crash Rising interest rates made large numbers of investors nervous Rising interest rates made large numbers of investors nervous - they began selling large # of shares - they began selling large # of shares Leads confidence to drop and prices pushed lower and lower Leads confidence to drop and prices pushed lower and lower

10. Black Tuesday October 29, 1929 October 29, 1929 Stock prices sank to shocking lows Stock prices sank to shocking lows 16 million shares of stock were sold in one day 16 million shares of stock were sold in one day = huge amount of debt = huge amount of debt

12. Stock Brokers & Debt Brokers began to contact investors who had purchased theirs on margin(by borrowing) Brokers began to contact investors who had purchased theirs on margin(by borrowing) They demanded cash to cover their loans They demanded cash to cover their loans Investors were unable to pay Investors were unable to pay = had to sell stocks at huge losses = had to sell stocks at huge losses By mid- Nov – leading stocks values were cut in half!! By mid- Nov – leading stocks values were cut in half!!

13. Part 2 The Beginning of The Great Depression The Great Depression

14. The Great Depression Public officials & Business leaders insisted the stock market crash was a temporary and minor setback Public officials & Business leaders insisted the stock market crash was a temporary and minor setback Coming events would prove them wrong Coming events would prove them wrong

15. Causes of the Great Depression 1. Banking Crisis 2. Business Failures 3. Rising Unemployment 4. Global Depression 5. Income Gap / Consumer Debt 6. Business Cycle

16. 1. The Banking Crisis Cause: Stock Market Crash – Cause: Stock Market Crash – Directly affected only a few Americans Directly affected only a few Americans Indirectly – affected millions Indirectly – affected millions Effect: Bank failures led to complete loss of all money in that bank Effect: Bank failures led to complete loss of all money in that bank

17. Banking Crisis Banks make money by investing their customer’s money Banks make money by investing their customer’s money Result: When the market crashed banks suffered severe losses like all investors Result: When the market crashed banks suffered severe losses like all investors

18. Defaults On Loans Cause: Many investors had lost most of their money in the crash Cause: Many investors had lost most of their money in the crash Effect: Most could not repay their bank loans Effect: Most could not repay their bank loans Result: This left many banks with little income Result: This left many banks with little income = Many banks had to close = Many banks had to close

19. Fear of Additional Failures Cause: Depositors fear losing their money if a bank closed Cause: Depositors fear losing their money if a bank closed Effect: Depositors panic and began trying to withdraw their savings Effect: Depositors panic and began trying to withdraw their savings Result: Catastrophe for banks that were already low on money Result: Catastrophe for banks that were already low on money Led to more bank failures Led to more bank failures

20. 2. Business Failures Over 26,000 businesses went bankrupt in 1930 alone Over 26,000 businesses went bankrupt in 1930 alone GNP = total value of goods & services produced per year. GNP = total value of goods & services produced per year. Gross National Product (GNP): Gross National Product (GNP): 1929 - $103 Billion 1929 - $103 Billion 1933 - $56 Billion 1933 - $56 Billion

21. Decreased Consumer Spending Cause: Consumers became unwilling or unable to buy new products Cause: Consumers became unwilling or unable to buy new products Effect: Debt & fear of bank failures brought an end to purchasing on credit Effect: Debt & fear of bank failures brought an end to purchasing on credit Result: people not buying stuff Result: people not buying stuff

22. 3. Rising Unemployment Cause: massive amounts of business failures Cause: massive amounts of business failures Effect: People lost their jobs as their companies simply ceased to exist Effect: People lost their jobs as their companies simply ceased to exist Result: 1932 – Result: 1932 – Unemployment reached 23.6% Unemployment reached 23.6% Up 20% over 3 years Up 20% over 3 years Underemployment – over 50% Underemployment – over 50%

23. 4. Global Depression Economic troubles in Europe contributed to the depression Economic troubles in Europe contributed to the depression Global economy was struggling due to massive war debts Global economy was struggling due to massive war debts World trade declined in the 1920s & 1930s World trade declined in the 1920s & 1930s

24. Global Depression’s Impact on America Cause: Foreign customers unable to purchase American goods – too expensive Cause: Foreign customers unable to purchase American goods – too expensive Effect: American industries were left with large surpluses Effect: American industries were left with large surpluses America placed high tariffs on foreign goods to help business America placed high tariffs on foreign goods to help business Smoot-Hawley Tariff:- highest in US History Smoot-Hawley Tariff:- highest in US History Accelerated the global depression by eliminating the American market for foreign industry Accelerated the global depression by eliminating the American market for foreign industry

25. Income Gap / Consumer Debt Disposable income - $ left after buying necessities Disposable income - $ left after buying necessities 1923 – 1929: Cause: 1923 – 1929: Cause: Disposable income of the wealthiest 1% of Americans increased by 63% Disposable income of the wealthiest 1% of Americans increased by 63% Disposable income for the poorest 93% declined by 4% Disposable income for the poorest 93% declined by 4% Effect: poor Americans lacked the $ to boost the economy Effect: poor Americans lacked the $ to boost the economy

26. 6. The Business Cycle = The regular ups and downs of business in the free enterprise economy = The regular ups and downs of business in the free enterprise economy

27. The United States Business Cycle, 1890-1940

28. Business Cycle Theory Prosperous Times: Prosperous Times: -Industry increases production & hires more workers -Industry increases production & hires more workers =Production develops surplus =Production develops surplus During Surpluses: During Surpluses: - industry scales back production - industry scales back production =Workers are laid off and lose purchasing power =Workers are laid off and lose purchasing power

29. Recession / Depression Lasts until surpluses are depleted Lasts until surpluses are depleted Once surpluses are depleted industry increases and we start over Once surpluses are depleted industry increases and we start over