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Causes of the Great Depression: Consumer Goods Increase

Explore the factors that contributed to the Great Depression, including the increase in consumer goods, easy consumer credit, mass advertising, and the stock market crash. Discover how these events led to the collapse of the economy.

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Causes of the Great Depression: Consumer Goods Increase

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  1. Ch. 32 Causes of The Great Depression

  2. Consumer Goods increase • With decrease in taxesafter WWI people had more disposable income & business look to profit: • New goods came on the market(Ford’s idea of assembly line is mass producing all consumer goods) • Companies created new products for the home started mass advertisements: • small goods: razors, tissues, frozen foods, home hair color, band aids, deodorant. (Advertisers convinced you that you needed them to survive) • With homes wired w/ electricity new consumer goods invented: • Large goods: Refrigerators, vacuums, washing machines, radio, dishwasher, air conditioners, toasterAmerica Story of Us Henry Ford’s Assembly Line & mass production 9:55– 16:32

  3. Easy Consumer Credit • One reason for economic boom 1920’s was use of individual borrowing or credit. • Prior to 1920’s debt/credit was shameful • Now attitudes change because people believe they can pay it back (good times last forever) • “Buy now & pay later” became the advertising pitch & Americans racked up credit, buying all the new gadgets for their homes (convinced they couldn’t live w/ out these goods)(advertising) • by 1929 $6 billion worth of goods were bought on credit but80% Americans have no savings at all.

  4. Mass Advertising • New gadgets/inventions needed to be sold to the American people • Advertisers convinced public their need for these goods (ex. Deodorant – “your friends are too afraid to tell you”) • Ex. Easy credit plans, envy of peers, linking product w/ famous people • Advertisers had communication access w/ people through radio

  5. Stock Market Soars • Stock market experiences long period of rising prices (bull market) • 1920’s prolonged bull market convinced people to invest in stocks • Investors beganbuying stocks on margin (credit)= w/ $1000 investor could buy $10,000 worth of stock & the other $9,000 loaned by stockbroker (earned commission on sale & interest on loan) (stockbroker borrowing from banks)(no rules on how much banks have to hold in reserve so loaned all of it out) Held stock as collateral • All is good as long as stocks cont. to rise: if $10,000 stock rose to $11,000 investor could sell stock repay the loan & make $1,000 in profit. • Stocks rise 50 times higher then worth of each sharebecause of the demandfor the stocknot the worth of co.

  6. How stocks work • Stock is piece of company & price is value of % of company –limited liability of corporation. • ex. $1m co. w/ 1m shares =$1.00 each share – if co. worth up to $2m then each share worth $2 • If company was making profits or had good future sales =stock price rise(& everything is ok) • Stock prices fell when companies earnings dropped (because warehouses started to fill up because lack of new customers for durable goods) • Speculation= buyers bet the market would cont. to climb & they would make money quick (buying stocks above worth of company to get quick return/profit)

  7. Company 1929 bubble price Actual Worth _____ Copy this down on bottom of notes • Edison’s Electric $440 $164 2-3 X • American Power $1,753 $641 2.5 X • Brooklyn Gas $2,481 $99 24X • Consolidated Gas $1831 $801 2X • TransAmerica $673 $201 3X • American Superpower $711 $15 47X • *why was their a Increase of prices of stock above the actual worth of the company?

  8. Explain the trouble of an economy based on Durable goods: • Why was the economy based on durable goods? • How did Mass advertising on the radio help cause the Great Depression? • How was the extension of credit a cause of the Great Depression? • How did speculation or Buying stocks on Margin help contribute to the Stock Market Crash? • What happened to the price of stocks compared to their value or worth? What did this cause?

  9. What comes up must come down • Bull market lasted only as long as investors continue to put new money into market • Plus economy based on durable goods so once you have refrigerator don’t need one for decades • By 1929 , market running out of new customers.(new customers could have been Europeans but reciprocal tariff) • 4th stopped here (or farmers but electric grid didn’t reach rural areas) • Sept. 1929 professional investors see no new customers & started to sell off their holdings. • Joseph Kennedy made $ off prohibition then pulled $ out when overheard shoe shiners playing same stock market he had his millions in!!! • Prices slipped / other investors followed / prices fell further-dominos

  10. Stock Market Crash • Oct. 21, 1929 stock market plunged. • Oct. 24th stock market plummeted further • Oct. 29thBlack Tuesday prices took steepest dive yet (33% drop) • Stock market lost $10-15 billion in value • $30 billion was lost. • ($30 billion) That equaled total wages earned in 1929

  11. Banks Begin to Close • By 1929 banks had loaned $6 billion to stock speculators • Banks had put customer’s investments in stock market (hoping for higher returns) then if they loaned $ to customers(no regulations against this) • So when stocks collapsed banks lost $ on investments & lost $ from speculators who defaulted on loans.(stockbrokers dumped worthless stocks on banks) • News of banking crisis sent customers running to get their $ = bank runs (banks only carry % of $ you give them)(so no $) (no reserve requirement yet!)(today 3-10%) • Banks begin to close w/ customers losing all their savings (today we have FDIC up to $250,000)

  12. Herbert Hoover is President 1928-32 FDR becomes President in March

  13. Stock market crash was a trigger to other deep seeded issues that caused Great Depression: • Show Bust America the Story of Us: 1:00-6:15

  14. Roots of the Great Depression (Causes) • 1. Uneven Distribution of Income = Factories produced more then consumers could consume. Needed new customers? how did we fix this during imperialism? But who? • So came up w/ installment plan but w/ monthly payments increasing buyers • 2. stopped buying new goodsbecause durable (economy shouldn’t be solely based on durable goods) • Decrease in sales caused businesses to cut production clue: warehouses fill up • & as a result start to lay off employees (remember 80% of America has no savings)(no Unemployment, disability or SS) • 3. Chain reaction: cut in radio sales caused decline in copper wire sales (copper miners lost jobs) wood cabinets (lumberjacks lost jobs) & glass radio tubes (glassmakers lost their jobs) domino • 4. 26,000 businesses collapsed = 1. lack sales 2. $ in banks lost in stock market.

  15. 5. Loss of Export Sales 3rd period stopped here • Many jobs might have been saved if Americans manufacturers sold more goods overseas(Recovering Europe desperate for these goods) why didn’t they???? • Conservative Republicans had raised the tariff in the 1920’s to protect American businesses –Hawly-Smoot Tariff (highest ever) (didn’t grasp reciprocal tariffs yet) Foreign countries responded by raising their own tariffs • This meant fewer American goods sold overseas (demand down) (how did imperialists try to resolve this issue before WWI???) • Ability to produce goods outran its capacity to consume (gap between rich & poor caught up with us) • Is this issue relevant again today? NAFTA & TPP

  16. 6. Federal Reserve Failure • Failure to prevent widespread collapse of the nation’s banking system • After Stock Market & subsequent Depression: Should have lowered interest rates to encourage new businesses but raised % • Lead to a severe contraction in the nation’s supply of money in circulation. Show Yellen warning about Trump iphone

  17. Depression worsens • $40 B. lost in Stock Market (total cost of WWI for U.S.) • By 1930 4 m. jobless & 2 yrs later # tripled 12m ( 1 in 4 out of work 25%) • People w/ out jobs went hungry (bread lines blocks long to get free food)YMCA • No other industrialized country suffered so severe a setback – if you kept job wages slashed • Families couldn’t pay rent or mortgage so homeless #s soar (evictions w/ belongings put on street) (1/4 m. homeless) • Cardboard homes in cities= Hoovervilles • Sick joke: Hotels clerks asked customers “for sleeping or jumping” • Unemployed began to wander country in search of work (Hobos)(jumping trains) • Hoover flags, “bad time hoovering over us”

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