The Great Depression

1. The Great Depression March 23, 2009 Eddie Herdemian & Michael Flaherty

2. Post WW-I • World War I ends in 1919 • U.S. finds itself in a post-war recession • End of wartime production • Sharp drop in American exports • High unemployment, decline in wages • Huge government debts • Closure of businesses

4. Post WW-I Recession:1919-1921 • Over 600 bank failures • U.S. economy shrank 21.5% • Unemployment hits 11.7% • Sharp deflation at a rate of 18% • Wholesale prices decline by 36.8% • Credit crisis

5. Post-Recession:The Roaring 20’s • Recession ends in 1921 • Minimal government intervention • Decreased regulation • Lowered taxes • Begins a period of unbridled prosperity and economic growth in the U.S.

6. Statistical Analysis of this Outfit People who think it looks good People who think it looks bad

7. The Roaring 20’s • “Supply side” economic policy • Refinement of mass production • Introduction of many new consumer goods • Period of increased consumer spending • Tax cuts, especially for wealthiest bracket • Increased development of infrastructure • Unemployment drops to 1.8% in 1926

8. Employment 1920-1932 Recession, 1921 (unemployment of 11.7%) Roaring 20’s,1926 (unemployment of 1.8%)

9. Credit & The Roaring 20’s • Federal Reserve expands credit • Lowers interest rates • Money supply increased by 60% • American used this credit extensively • Real estate boom • Increased land prices

10. Stock Market & the 20’s • 1921-1929: DOW rose from 60 to nearly 400 • Stocks were seen as safe investment • Investors bought stocks on margin • Resulting in leveraged positions • “Market always goes up”

11. “Market Always Goes Up”

12. The Dow Peaked on September 3rd, 1929 at 381.17

13. 1929 Stock Market Crash • Black Thursday – 12.9 million shares traded & $5 billion in losses • Black Monday – 13% loss in the Dow • Black Tuesday – 12% loss in the Dow & 16 million shares traded • Buying Stocks on Margin

15. Debt Deflation • Irving Fisher • “Over-indebtness” and deflation • 1929 Margin Requirements was 10% • Bank Runs • Bank failures • 9000 Bank failures during the 1930’s • 744 Bank failures during the first 10 months of 1930 • Incomes fell by 20-50% • Recession -> Depression

16. Trade Decline • Smoot- Hawley Tariff Act • Reduces international trade • Decline in exports • Decrease from $5.2 billion to $1.7 billion from 1929 to 1933 • American Farmers • Farm commodities hit the hardest

19. "Monopoly" was on the market in 1935, and a very popular game. This was because the thought of being rich enough to buy and sell properties was fun!

20. US Federal Reserve • Insignificant emergency lending • Less money going around • Can’t get loans or renew old loans

21. Al Capone opened a soup kitchen to make himself more popular. Even though he was a gangster, people were grateful for his help.

22. Turning Point and Recovery • Began in the Spring of 1933 • By 1936 unemployment falls to 16.9% • Executive Order 6102 • New Deal • WWII

23. During the Great Depression, how much did a Doctor and a Farm Hand make?

24. Answer • A Farm hand made $216.00 a year.  • A doctor made $3,382.99 a year. • Farm hand salary inflated to today is $3,025 • Doctor salary inflated to today $47,361

25. Lessons Learned • Strong Policy Response • Federal reserve has currently been aggressive • Stimulus & Continuing it • Bailouts • Cutting interest rates

26. More Lessons Learned • Avoid Deflation • Deflation was massive during the Great Depression • Deposit Insurance • FDIC • Leave the Gold Standard • Fed is Free to have more money circulated, not tied to gold

27. Even More Lessons Learned • Money lessons learned from Great Depression are applicable today • Frugality Is Not a Bad Word • Do it yourself • Avoid debt and save • Used is as good as new

28. Credit: Then & NowGreat Depression • Great expansion of available credit • From 1920 to 1929, real estate mortgages rose from $11b to $27b • Lenders became exposed to bad borrowers • Consumers and investors came to rely on credit • Market downturn caused many to default • Unavailability of credit

29. Credit: Then & NowToday • Current credit crisis • Similar to Great Depression credit crisis • Subprime loans, piggyback loans • Lenders exposed to bad borrowers • Market downturn caused foreclosure crisis • Businesses over-leveraged • Unavailability of credit

30. You’re clearly over-leveraged dude.

31. Dow Jones: Then & Now • Dow follows similar paths • Fell 47% in 1 month in 1929 • Fell 42% in 1 month in 2008 • More people are invested in stocks today

32. GD Similarities to Today • Real Estate boom followed by a decline • Layoffs and unemployment • 2008 US population 303,824,640 • 1933 US population 125,578,763 • Bank Failures • 45 Banks Failed in 2008 & 2009 • 5 Banks Failed in 2005

33. Closing Thoughts “It can be argued that the shock hitting the US economy in this recession was bigger than the one that led to the Depression.” -Allan von Mehren

34. Sources Von Mehran, Allan. Global: Lessons from the Great Depression. Rep. Danske Research. Waggoner, John. "Is today's economic crisis another Great Depression?" USA Today 4 Nov. 2008. Kangas, Steve. "Timelines of The Great Depression." Resurgence Magazine. http://www.hyperhistory.com/online_n2/connections_n2/great_depression.html http://www.shmoop.com/events/history/us/the-great-depression.html http://www.geocities.com/capitolhill/senate/6854/greatdep.html http://www.dailymarkets.com/economy/2009/01/01/unemployment-rate-from-2005-2008-higher-than-1926-1929/ http://www.hanlonsrazor.org/2009/02/10/something-to-consider-when-discussing-stimulus-spending-and-economic-crises/ http://www.stock-market-crash.net/1929.htm http://www.bis.org/publ/work137.htm