A Different Kind of Depression

To Explain Let’s Start in Holland of 400 years ago.

Tulipmania

• In 1634. One Tulip bulb cost the equivalent of $50,000.

• Why? Listen and I’ll tell you….

• Basic Point.• Speculation

•At first glance, the 1920’s seemed long a Golden Age.

•“Prosperity Forever” Proclaimed Many People

•“We have not yet reached the goal, but given a chance to go forward with •the policies of the last 8 years, and with the help of God, be within sight of the •day when poverty will be banished from the nation.”

•President Herbert Hoover in 1928

•Hoover spoke for the middle class dream. The huge industrial machine started •in the 1920’s had reached huge heights

•Assembly lines cranked out products by the millions

•Advertising induced us to buy them

Overnight Change

• Seemingly overnight, America had moved from privy, icebox, and buggy to indoor plumbing, refrigerators and cars.

Easier Lives

• Washing Machines, vacuum cleaners, telephones all made life more convenient.

• We were headed we thought to permanent prosperity.

• Yes, the 1920’s were very good times for many Americans. More were doing well and living better than ever before.

Get Rich or Die Trying

• It looked like people could get rich barely even trying.

• By 1929 1.5 mil. Americans were trading in the Stock Market and the market kept going up and up and up. How could you lose?

All Not Sharing the WealthAll Not Sharing the Wealth

Of course, many people had no extra money Of course, many people had no extra money to invest in the first place.to invest in the first place.

Of the nations 27 million families, 21 million Of the nations 27 million families, 21 million (78%) were not doing so well.(78%) were not doing so well.

These people earned under $3000 a year.These people earned under $3000 a year. Among them were 6 million families, earning Among them were 6 million families, earning

less than $1,000.,less than $1,000.,

Then, How Could They Buy Anything?

Easy, one word

“Credit”

Credit

• Almost anything could be bought on credit.• ¾ of cars were being financed through

credit.• Americans were buying for the first time

anything that could be plugged in.• Toasters, refrigerators, radios, coffee

makers, irons, and all other sorts of household appliances… all could be bought on credit.

Speculation.

• Speculation is gambling on the stock market hoping to make a rather quick profit.

• Few workers bought stocks, but they were encouraged to do so.

• Things of course is just like Tulipmania all those years ago.

A Basic Problem

• Gap between incomes was huge!

• ¾ of American families had no savings at all!

• The top 0.1 percent owned 34% of the wealth.

So, Three Basic Reasons for the Great Depression

• Overproduction

• Wages not keeping up for all Americans/ Not the Roaring Twenties for many.

• Credit

These 3 basic reasons can be seen in these 6 points.

1) Business kept prices and profits high. Through the 1920’s business had grown and grown and monopolies developed that were able to control profits. With their high profits, they put them back into more production, so they could make even more profit. At the same time, they kept wages low and workers couldn’t buy what they produced.

What Roaring Twenties?

2) Farmers had been in bad shape since WW1. Overproduction. Farmers actually losing money by the process of farming. Couldn’t buy what the factories were making.

Bigger Plants

• 3) The booming economy caused industry to build many more factories. Soon they could make far more than they could sell

Improved Technology

• 4) Machines took over the jobs of people. With fewer workers, less money was paid in wages and less $ to buy the goods made at the factories.

Global Economy

• 5) World wide economy was Lousy. Europe, was still devastated by WW1.

• This is an underlying weakness that was going to catch up with us. We can’t buy our products and they can’t either.

Finally,

• 6) Credit was so easy to get that huge numbers of people went into debt. Stock market turned into a gambling machine. People were willing to pay high prices to sell them at higher prices. Soon stocks were far beyond the real values of the companies.

All Together,

• These weaknesses were at the heart of our seemingly Golden Decade. It was like a castle built in the clouds. The fundamentals of the economy weren’t nearly as strong as they seemed. And so, it all came crashing down.