The Great Depression

1. The Great Depression

2. Journal • You have $10,000 in cash. • By loaning the money out, you could potentially turn your original $10,000 into a lot more money. • Would you spend the money or lend it to people who would have to pay you back over a period of time, plus interest? • Assuming you loaned it out….. - Would you lend money to a person who has a history of not paying back loans if they were willing to pay you a higher interest rate? - How do you make sure that the money you loan out is paid back? - If you don’t get paid back, how will your loss of $10,000 negatively affect businesses other than your own?

3. Beware of Easy Credit! • The economic crash of 1929, like that of 2008, came after a period of time in which Americans seemed to be wealthier than they really were. • Due to easy credit, consumers were buying more goods and homes than ever before. • Because people were using money that wasn’t really theirs, it made it easier for companies to sell goods. • This caused prices to rise faster than wages, and people could no longer afford to pay their bills and buy new things. • Americans piled up large amounts of debt buying goods on credit. To pay the debt back, plus interest, people cut back on spending.

4. Distribution of Wealth • Between 1920-1929, the income of the wealthiest 1% of the population rose by 75%. • As a whole, the income of Americans rose 9% during the same time. • The rich were getting richer and the poor poorer – more than 70% of American families earned less than what they needed for a decent standard of living (food, shelter, new clothes). Credit allowed them to buy what they needed.

5. Dangers of Credit • The average American could only afford one new outfit of clothes a year on the money made from wages. • Without credit, most Americans could not afford the modern goods being produced by companies. • Because so many people were buying goods on credit, companies began producing lots of things that people could not really afford. • When people cut back on spending to pay debts, many of these companies went out of business.

7. Journal #2 • Think of the money you spend in a normal month. Where does it come from? • If you could only spend half as much money on yourself as you do right now, what would be the first thing that you would stop buying/paying for? • What is a company that would go out of business if people suddenly had less money to spend on things they don’t really need?

8. Farmers Go Bust • During World War I, prices of crops rose because of high international demand. • Farmers made huge profits, and took out loans to plant more crops and buy more land. • After the war ended, crop prices dropped 40% • Farmers grew more crops to make up the difference, but this drove the price down more. • Farmers couldn’t pay back their loans and had their farms taken away. • 400,000 farms were lost through foreclosure. • Without land, farmers struggled to survive. Without their business, companies that sold products to farmers struggled too.

9. Stock Market Crash of 1929 • During the 1920’s, it became popular to invest money in the stock market, where you pay for a small piece of a company. • Stock prices rose steadily, and people felt that this meant that the economy was doing well. • The prices rose because the demand for stock was high, not because the companies were making profits. • People started buying stock “on margin” – paying a small down payment and borrowing the rest, hoping that the stock will go up in value quickly. • This made the value of the stocks artificially high and a very dangerous investment.

10. Black Tuesday • During the Fall of 1929, people started to realize that stock prices had risen to prices that couldn’t last. They started selling their stocks. • On October 29, called “Black Tuesday,” 16.4 million shares of stock were sold. • The sell-off made some stocks become virtually worthless overnight. • People who had bought “on margin” hoping to make a quick profit were stuck with huge debts that they couldn’t pay off. • Many people lost their life savings. • The stock market lost $14 Billion in one day. • The stock market did not reach its pre-crash value again until 1954.

11. Bank Failures • The stock market crash started a period that lasted until 1940 in which the economy plummeted and unemployment skyrocketed. • By 1933, almost half of the nation’s 25,000 banks had failed due to bad investments in the stock market and loans that were not paid back. People swarmed the banks in a panic to take out their money before they went bust. • Millions of people had deposits in these banks and lost all of their money when the banks failed.

12. Business Failures • 90,000 businesses went bankrupt between 1929 and 1932. • Millions of workers lost their jobs, and 25% of working age men were unemployed in 1933. • Before the stock market crash, unemployment was 3%. • People lucky enough to keep their jobs got pay cuts and reduced hours. • The Gross National Product – the value of goods and services produced by the United States – was cut in half.

13. The Dust Bowl • During the 1930’s, the Great Plains suffered through seven years of drought. • The drought caused crops to die and the ground to turn to dust. • Years of heavy farming and plowing made the ground unable to support crops. • Strong winds created dust storms that picked up millions of tons of dust and made life miserable. • Thousands of people from the region packed up their belongings and moved West to the Pacific Coast. Called “Okies” because of the high number of migrants who came to California from Oklahoma.

14. Effect on People • Between 1928-32, the suicide rate rose by 30%. • People gave up dreams and focused on survival. • 2,600 schools closed due to lack of funding – leaving 300,000 students out of school. • Children went to work in illegal “sweatshop” factories. • Hundreds of thousands of people were homeless, and lived under bridges and in shelters. • Thousands of men known as “Hoboes” abandoned their families and rode around the country on freight trains. This was dangerous, and at least 25,000 were killed by accidents or murdered.