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PROSPERITY SHATTERED

Chapter 15, Section 1 delves into the economic troubles leading to the Great Depression, highlighting key issues such as the reliance on credit, stock market speculation, and agricultural crises. Despite a perceived prosperity, warning signs like “sick” industries and inflated stock prices went largely ignored. The chapter examines events leading to the catastrophic October 1929 market crash and its aftermath, including bank failures and massive business bankruptcies. Factors like the income gap and global trade decline contributed to this economic meltdown that altered the course of history.

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PROSPERITY SHATTERED

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  1. PROSPERITY SHATTERED CHAPTER 15 SECTION 1 PAGES 442-447

  2. ECONOMIC TROUBLES ON HORIZON • Some voices warned of problems within US economy • Nations agricultural crisis • “Sick” industries • Reliance on credit • Stock speculation on overheated market • Widespread prosperity led most Americans to believe economy would continue to grow

  3. CREDIT • By 1929 total number of credit purchases was 6 times higher that 1915 • Reached a total of $7 billion • Federal government kept interest rates low during 1920s • Experts said that easy credit would promote business, but credit load could hurt consumers in a downturn • People ignored and continued to buy on credit

  4. PLAYING THE MARKET • Investors paid millions into market • Bull Market– upward trend in prices • Bear Market– downward trend • Speculation– buying and selling to make a quick profit • Inflated prices– some were selling for more than they were worth • Margin buying– purchasing stock with borrowed money • As little as 10% of price • Once prices fell investors found themselves deep in debt

  5. STOCK MARKET CRASH • October 24, 1929 “Black Thursday” • Large number of shares sold by nervous investors • Confidence fell and prices plunged– Panic set in • J.P. Morgan and other Bankers bought stocks at end of session to stop plunge

  6. “BLACK TUESDAY” • OCTOBER 29, 1929 • Investors dump more than 16 million shares of stock on market • Chain of events • Brokers demand cash to payoff loans given to margin buyers • Investors sold stock to cover losses • Repeat steps 1 and 2, over and over • By mid November stocks had lost $30 billion

  7. DEPRESSION BEGINS • Officials called it temporary and minor • Herbert Hoover– “We have now passed the worst and… shall rapidly recover”

  8. BANKING CRISIS • Only a small percentage had money invested in stock market • Banks suffered significant losses • Worst crisis came when borrowers defaulted on loans • Some banks were forced to close • Depositor wanted their savings • Between 1930-32– 5,000 banks failed

  9. BUSINESS FAILURE • Consumers were unwilling to buy products– especially on credit • Businesses forced to trim inventories and scale back production and layoff workers • 26,000 business went bankrupt in 1930 • 28,268 in 1931 • 1929 Gross National Product was $103 billion by 1933 fell to $56 billion • Unemployment reached 23.6% by 1932– 3.2% in 1929

  10. WHAT CAUSED GREAT DEPRESSION? • Stock Market crash was not sole cause of our depression • Global Depression • Income gap • Consumer debt • The business cycle

  11. GLOBAL DEPRESSION • U.S. Depression blamed on state of finances following WWI • World trade declined– foreign consumers unable to buy American products • Industry stuck w/ large surpluses • Smoot-Hawley Tariff of 1930 • Highest in U.S. history • U.S. tariffs contributed to global depression • Eliminated U.S. market for imported goods– accelerating depression

  12. INCOME GAP • Unequal distribution of income • Between 1923-29 disposable income of wealthiest 1% of America grew by 63% • Meanwhile poorest 93% disposable income decreased by 4%

  13. CONSUMER DEBT • Most people did not have buying power needed to boost economy • Some bridged gap by buying on credit • Reliance on credit contributed to economic chaos • Once depression hit government raised interest rates and consumers could not pay debts

  14. THE BUSINESS CYCLE • Some experts believe depression was inevitable part of business cycle • All economies go through ups and downs with free enterprise • Length and severity of Great Depression went beyond normal rhythms of business cycle

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