Great DepressionGreat DepressionChapter 22Chapter 22Section 1Section 1

Brainstorming:Brainstorming:

What is a depression?What is a depression?What were some of the What were some of the

warning signs of the Great warning signs of the Great Depression?Depression?

Industries in TroubleIndustries in Trouble

superficial prosperitysuperficial prosperity hid hid economic weaknesses economic weaknesses

railroads, textiles, and steel railroads, textiles, and steel had had barely made a profitbarely made a profit

mining & lumberingmining & lumbering were no were no longer in demandlonger in demand

coal-mining hard-hitcoal-mining hard-hit, due to new , due to new forms of energy forms of energy

Farmers Need a LiftFarmers Need a Lift

WWI - WWI - prices rose & international prices rose & international demand for cropsdemand for crops such as wheat such as wheat & corn soared& corn soared

farmers planted more & taken out farmers planted more & taken out loans for land & equipmentloans for land & equipment

demand fell after the wardemand fell after the war & crop & crop prices declined by 40 percent or prices declined by 40 percent or moremore

farmers boosted production in farmers boosted production in the hopes of selling more the hopes of selling more crops, but this only depressed crops, but this only depressed prices furtherprices further

1919-1921 annual farm 1919-1921 annual farm income declined from $10 income declined from $10 billion to just over $4 billionbillion to just over $4 billion

Literally using HorsePowerLiterally using HorsePower

farmers farmers couldn’t pay off loanscouldn’t pay off loans farms lostfarms lost when banks seized the when banks seized the

property as paymentproperty as payment as they default on loans, as they default on loans, many many

banks began to failbanks began to fail auctions were held to recoup auctions were held to recoup

some of the banks’ loanssome of the banks’ loans

Foreclosure Auction in IowaForeclosure Auction in Iowa

McNary-Haugen BillMcNary-Haugen Bill

called for called for price-supportsprice-supports for key for key products products –government would buy government would buy surplus crops at set prices and surplus crops at set prices and sell them on world marketsell them on world market

President Coolidge vetoed the President Coolidge vetoed the bill twicebill twice

Consumers Have Less Money Consumers Have Less Money Farmers bought fewer Farmers bought fewer

goods/servicesgoods/services Americans were buying lessAmericans were buying less

1.1. rising pricesrising prices2.2. stagnant wagesstagnant wages3.3. unbalanced distribution of incomeunbalanced distribution of income4.4. overbuying on credit overbuying on credit

Production expanded faster than Production expanded faster than wages, resulting in a wages, resulting in a gap between gap between rich and poorrich and poor

Living on CreditLiving on Credit

Bought goods on creditBought goods on credit w/interestw/interest

Many had trouble paying off their Many had trouble paying off their growing debtsgrowing debts

Faced with debt, many cut back Faced with debt, many cut back on spendingon spending

Uneven Distribution of Uneven Distribution of IncomeIncome

Wealthiest income (only 1% of Wealthiest income (only 1% of the population) rose by 75%the population) rose by 75%

70% of nation’s families earned 70% of nation’s families earned less than $2500 a year less than $2500 a year

Families earning 2X that much Families earning 2X that much couldn’t afford many household couldn’t afford many household productsproducts

YEE HAW Game

Get into pairs Take a direction sheet and

await directionsYou must make your decision

and annotate it in inkAll decisions are final

Dreams of Riches in the Stock Dreams of Riches in the Stock MarketMarket

Economists Economists warned of warned of weaknesses weaknesses in the economy, in the economy, but but most Americans confident most Americans confident in the nation’s economic healthin the nation’s economic health

Stock market became the Stock market became the symbol of a prosperous symbol of a prosperous American economyAmerican economy

Hoping to Strike it RichHoping to Strike it Richspeculationspeculation – – buying stocks & buying stocks &

bonds on chance of quick bonds on chance of quick profit, ignoring the risksprofit, ignoring the risks

Buying on margin Buying on margin – – paying a paying a small of % a stock’s price as a small of % a stock’s price as a down payment & borrowing down payment & borrowing the restthe rest

Effects of this Practice:Effects of this Practice:

1.1. Caused the upward spiralCaused the upward spiral

2.2. Rising prices didn’t reflect the Rising prices didn’t reflect the companies’ worthcompanies’ worth

3.3. If the value of stocks declined, If the value of stocks declined, people who had bought on people who had bought on margin had no way to pay the margin had no way to pay the loans.loans.

The Stock Market The Stock Market CrashesCrashes

Early September 1929, stock Early September 1929, stock prices peaked and then fellprices peaked and then fell

investors quickly sold their investors quickly sold their stocks and pulled outstocks and pulled out

October 24, the market took a October 24, the market took a plunge and panicked investors plunge and panicked investors unloaded their sharesunloaded their shares

Black TuesdayBlack Tuesday

October 29, 1929October 29, 1929Bottom fell out of the marketBottom fell out of the marketTried to sell before prices Tried to sell before prices

plunged even lowerplunged even lower

Stock Market Bubble BurstStock Market Bubble Burst

People who bought on credit People who bought on credit were stuck with huge debts as were stuck with huge debts as prices plummeted, while others prices plummeted, while others lost their savingslost their savings

by mid-November investors had by mid-November investors had lost about $30 billion (amount lost about $30 billion (amount equal to how much America paid equal to how much America paid for WWI)for WWI)

Financial CollapseFinancial Collapse

Stock market crash symbolized Stock market crash symbolized beginning of the Great Depressionbeginning of the Great Depression

The economy plummeted and The economy plummeted and unemployment skyrocketedunemployment skyrocketed

Crash hastened the collapse of Crash hastened the collapse of the economy and made the the economy and made the depression more severedepression more severe

Bank and Business FailuresBank and Business Failures

Many withdrew their money from the banksMany withdrew their money from the banks

The BanksThe Banks

many invested in the stock many invested in the stock marketmarket

By 1933, 11,000 of the By 1933, 11,000 of the nations 25,000 had failednations 25,000 had failed

Because the government did Because the government did not protect or insure bank not protect or insure bank accounts, millions of people accounts, millions of people lost their savings accountslost their savings accounts

the gross national product – the gross national product – nation’s total output of goods nation’s total output of goods & services – was nearly cut in & services – was nearly cut in half half

About 90,000 businesses About 90,000 businesses went bankruptwent bankrupt

Millions Lost JobsMillions Lost Jobs

Unemployment increased to Unemployment increased to 25% in 1933.25% in 1933.

One out of every four workers One out of every four workers was out of a jobwas out of a job

Those who kept their jobs Those who kept their jobs faced pay cuts and reduced faced pay cuts and reduced hourshours

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Some were LuckySome were Lucky

Sold their stocks before the Sold their stocks before the crash and made moneycrash and made money

Joseph P. Kennedy, the father Joseph P. Kennedy, the father of future president John K. of future president John K. Kennedy, was one who didKennedy, was one who did

Most were not so luckyMost were not so lucky

Causes of Great DepressionCauses of Great Depression

1. Old and decaying industrial 1. Old and decaying industrial basebase–outmoded equipment made outmoded equipment made some industries less some industries less competitivecompetitive

2. A crisis in the farm sector2. A crisis in the farm sector–Farmers produced more Farmers produced more than they were able to sell, than they were able to sell, especially with the end of especially with the end of WWI and the disappearance WWI and the disappearance of markets that the war had of markets that the war had opened to themopened to them

3. The Availability of easy 3. The Availability of easy creditcredit– Many people went into debt Many people went into debt

buying goods on the buying goods on the installment planinstallment plan

4. An unequal distribution of 4. An unequal distribution of incomeincome–There was too little money There was too little money in the hands of the working in the hands of the working people, who were the vast people, who were the vast majority of consumers.majority of consumers.

Dow Jones Industrial Dow Jones Industrial AverageAverage

was barometer of the stock was barometer of the stock market’s healthmarket’s health

A measure based on the A measure based on the stock prices of 30 large firms stock prices of 30 large firms trading on the New York trading on the New York Stock ExchangeStock Exchange

1920’s - stock prices rose 1920’s - stock prices rose steadilysteadily

Worldwide Shock Waves Worldwide Shock Waves

Europe suffered recovering from Europe suffered recovering from war & faced debtswar & faced debts

Germany paying war reparationsGermany paying war reparations Great Depression added to Great Depression added to

problems by limiting U.S. ability to problems by limiting U.S. ability to import European goodsimport European goods

Difficult to sell U.S. farm products & Difficult to sell U.S. farm products & manufactured goods abroadmanufactured goods abroad

Hawley-Smoot Tariff (1930)Hawley-Smoot Tariff (1930)

1.1. highest protective tariff in U.S. highest protective tariff in U.S. historyhistory

2.2. Designed to protect American Designed to protect American Farmers & manufacturers from Farmers & manufacturers from foreign competitionforeign competition

3.3. Unemployment worse in Unemployment worse in industries that could no longer industries that could no longer export goods Europeexport goods Europe

Results of the Tariff:Results of the Tariff:

Many countries retaliated by Many countries retaliated by raising their own tariffs raising their own tariffs

Within a few years, world Within a few years, world trade had fallen more than trade had fallen more than 40%40%