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Prosperity Shattered

Chapter 15, Section 1 delves into the early warnings of economic turmoil leading to the Great Depression. Highlights include agricultural crises, reliance on credit, and the dangers of stock speculation characterized by margin buying. The precarious state of “sick” industries and low interest rates aimed at boosting business are explored. Key events like the stock market crashes on Black Thursday and Black Tuesday illustrate the loss of investor confidence and the catastrophic impacts on banks and businesses, culminating in a global economic collapse and severe disparities in wealth distribution.

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Prosperity Shattered

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  1. Prosperity Shattered Chapter 15 Section 1

  2. Economic Troubles on the Horizon • Warnings that the econ was in trouble included: (see pg 442-443) • Ag. Crisis • “sick” industries • Consumer reliance on credit • Interest rates were low to promote business • Bought things, but had no money to pay

  3. Stock speculation • Bull market-market w/ an upward trend in stock prices • Rapid buying & selling of stock to make a quick profit • Problem: inflated the prices to stock (pay more than actually worth-depends a lot on consumer confidence- if it falls, so does the price) • Bought stocks w/ borrowed money called margin buying (if price falls, then deep debt)

  4. Summary • Describe why the business practices concerned economic experts during the 1920s.

  5. Stock Market Crashes • Black Thursday- Oct. 24, 1929-stock market crashes • Many investors sell stock • Nervous about rising interest rates • Caused investor confidence to fall therefore prices

  6. Black Tuesday-Oct. 29, 1929-stock prices sink even more • Brokers contact customers that had bought stock on the margin-can’t repay $ so have to sell stock at a huge loss • Thought it was only temporary setback • Few people had invested-however still helped caused severe depression

  7. Summary • What factors led to the crash of the stock market?

  8. Banking Crisis • People could not make their loan payments • Little income for banks-why is this bad? (see pg 444) • Forced to close • Customers would lose savings if the banks closed • Withdrew $-more banks close

  9. Business Failures • Consumers stop buying goods- especially on credit • Layoff workers=high unemployment • Scale back production

  10. YES-NO-WHY • The Great Depression would not have happened if the stock market would not have crashed.

  11. Global Depression • Massive debt from WWI slowed world trade • Am. companies relied on foreigners to buy-w/o led to massive surplus • US placed high tariffs on imported goods • Smoot-Hawley Tariff- highest in US history meant to protect Am. industry from inexpensive imports • Helped world depression by eliminating US market

  12. Global Depression Cont. • Income gap-rich got richer, poor got poorer • Poor bought on credit-no money meant they couldn’t spark production • Interest rate got higher-couldn’t pay debts

  13. Business Cycle • Draw a picture of the business cycle. See page 447 for a description of the business cycle.

  14. What caused the Great Depression? • Stock market crash • Margin buying • Stock speculation • Bank Failures • Consumer reliance on credit • Business Failures • Global economic crisis • Unequal distribution of wealth

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