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The Beginning of the GREAT DEPRESSION

The Beginning of the GREAT DEPRESSION. 1. What was the general economic trend of the 1920’s?. 1920’s a decade of extreme economic growth Industries producing more consumer goods with more efficiently Unemployment: averaged 3%. What is GNP?.

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The Beginning of the GREAT DEPRESSION

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  1. The Beginning of theGREAT DEPRESSION

  2. 1. What was the general economic trend of the 1920’s? • 1920’s a decade of extreme economic growth • Industries producing more consumer goods with more efficiently • Unemployment: averaged 3%

  3. What is GNP? Sum total of all final goods and services produced within a country during a specific time period (year). Calculated by adding:Total wages and salaries + Profits of incorporated and unincorporated businesses + Rental incomes + Interest incomes = GNP

  4. 3. What industry drove the expansion of the American economy in the 1920’s? • 1919: 6.7 million cars in U.S. • 1929: 27 million cars in U.S. • 1929: 4 out of 5 American families owned a car • 12.7% of American manufacturing (1929) • 1 in 12 workers employed in Auto industry

  5. Automobiles in the 1920’s

  6. The Stock Market • What is a Stock? • A portion of ownership in a corporation • Increases in value based on success of business

  7. Many Americans buying on CREDIT • 1920’s: Many Americans used credit buy consumer goods (cars, electronics) • End of 1920’s: Credit was “drying up” • Americans had so much debt that they couldn’t afford to continue purchasing • Consumer sales decreased . . . Leading to decrease in profits of companies

  8. What is Buying on Margin?

  9. What did Roger Babson warn in September 1929?  "Sooner or later a crash is coming, and it may be terrific." 

  10. 3 Reasons for the “Crash” • Inequality of wealth distribution • 70% made less than $2,000 per year. • Top 5% controlled 30% of economic wealth. • Production overtook consumption • Businesses producing more than consumers demanding (production efficiency/credit limits) • Businesses start reporting decreased profits • Boom & Bust Cycle • “Boom” (increased buying of stocks) followed by “Bust” (rapid decrease in value of stocks)

  11. “Boom to Bust”Stock Market “Bubble” • Shares of stock rising because of so many investing in stock market (high demand) . . . NOT based on the actual earnings of the stock/business. • Stock prices became artificially high (“bubble”) • As corporations reported lower earnings, investors start cashing in stocks. • Other investors panic & try to sell . . .

  12. Selling leads to… THE STOCK MARKET CRASH

  13. “BLACK THURSDAY”Thursday October 24, 1929 • Investors begin selling stocks leading to plummeting (falling) price of stocks. • 12.9 shares of stock sold • Panic stops when group of 6 bankers “pool” their money & buy stocks.

  14. “Black Thursday” leads to anxiety and fear in Americans

  15. Stocks stabilize on Friday & Saturday Monday October 28, 1929 • More investors start to pull out of stock market. Market decreases 13%

  16. “Black Tuesday” Tuesday October 29, 1929 • Investors “panic” that stock prices are decreasing… • Investors sell over 16 million shares of stock . . . Stock Market decreases another 12%

  17. Video on the Crash of 1929 http://www.youtube.com/watch?v=iLnDPntfNFw

  18. The Great Depression

  19. Causes of the Great Depression • Stock Market Crash of 1929 • $40 Billion dollars in stockholder money gone • Led to decrease in confidence. • Investors & businesses less likely to invest • Banks had invested money in the stock market & lost it

  20. Causes of the Great Depression 2. Lack of diversification in the economy • 1920’s prosperity depended largely on construction & automobile industry • Late 1920’s: construction & auto industries declining • Construction: 1926: $11 Billion  1929: $9 Billion • Automobiles: Decreases 33%

  21. Causes of the Great Depression 3. Extremely unequal distribution of wealth leads to overproduction. • Wages didn’t rise in proportion to manufacturing productivity (Manufacturing increases/consumption decreases) • 71% of Americans live on below $2,500 per year • Americans too poor to buy the goods American industry is producing Americans stop purchasing  Businesses decrease production  Workers eliminated  Raising unemployment

  22. Causes of the Great Depression 4. Credit & Investment • Farmers heavily in debt to banks for land & equipment • Crop prices decrease (86%)  Farmers unable to repay loans  Farms foreclosed . . . Unemployed farmers • Investors who had “bought on margin” • Lenders “call in” loans . . . Investors go broke and default or lost investments • Banks investing deposits in the stock market • Loose money. Constrict credit. Bank runs. Bank failures

  23. Causes of the Great Depression 5. Destabilizing of American/European Trade • After WWI, Europe reliant on American agriculture & manufacturing. Part of reason for U.S. economic growth of 20’s. • European demand for American goods declines in late 1920’s. • European manufacturing & agriculture rebuilding • European economic troubles due to post-War debt • Hawley-Smoot Tariff (1930) • American protective tariff against foreign goods. • 33 foreign governments react by raising tariffs on U.S. • Fewer exports  fewer goods sold  decreased production Decreased profits  Rising unemployment

  24. TheEffectsof the GREAT DEPRESSION

  25. What happened to many banks? • Many banks “speculated” in the Stock Market in 1920’s (Invest w/depositors $) • After the Crash, some banks closed because they lost depositors savings in the 1929 Stock Market Crash. • Fear & uncertainty leads to . . . BANK RUNS

  26. Bank Run: When a large number of people withdraw their money from a bank at the same time out of fear the bank will “go under” What is a Bank Run?

  27. 1929 – 1933: 9,000 banks close • Depositors lost $2.5 Billion • Banks stopped lending money & calling in loans

  28. What happened to farms? • Many farmers in debt to banks for land & equipment • Price of agricultural goods decreases Decreased income for farmers

  29. Thousands of farmers unable to make payments to banks for land/equipment loans • 1933: 364,000 farms foreclosed on

  30. To make matters worse . . . The Dust Bowl • Irresponsible farming practices • Drought • Wind storms lead to dust storms

  31. What happened to employment? • As GDP fell, unemployment increased • 1930: 4.2 million unemployed (9%) • 1933:12.6 million unemployed (25%)

  32. What was the unemployment rate in Harlem in 1932? 50%

  33. What was life like for the unemployed? “They hung around street corners and in groups. They gave each other solace. They were loath to go home because the were indicated, as if it were their fault for being unemployed. A jobless man was a lazy good-for-nothing. The women punished the men for not bringing home the bacon, by withholding themselves . . . The men suffered from depression . . . They were ashamed of themselves . . . They avoided home.” – Nathan Ackerman (Psychiatrist)

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