The Great Depression

1. The Great Depression Signs of Trouble Stock Market Crash The Depression Begins

2. The United States Economy in the 1920’s • The United States economy in the 1920’s was very strong • The growth of the automobile industry had a positive impact on many other industries • Unemployment was low • People were making more money and working less

3. Installment Buying • In the 1920’s Americans began buying items they couldn’t afford through the use of installment buying (buying on credit) • This increased the demand for goods • But it also increased consumers debt

4. The Stock Market • The strength of the economy led many people to invest in the Stock Market in hopes of becoming rich

5. How does the stock market work? You buy 100 shares of stock of x $5.00 per share How much money have you invested? $500.00 Scenario #1 stock increases to $20 per share How much are your 100 shares of stock now worth? How much profit have you made? 100 shares of stock $2,000.00stock value x $20.00 per share - $500.00 initial investment $2,000.00 $1,500.00 net profit

6. How does the stock market work? You buy 100 shares of stock of x $5.00 per share How much money have you invested? $500.00 Scenario #2 stock decreases to $1 per share How much are your 100 shares of stock now worth? How much money have you lost? 100 shares of stock $100.00stock value x $1 per share - $500.00 initial investment $100.00 $400.00 net loss

7. Buying Stock on Margin • People who did not have money to purchase stock could buy stock on margin • Banks and stock brokers would loan people money to purchase stock • People had to pay back the bank/brokers with interest

8. Buying Stocks on Margin: Scenario A Hello, sir. I would like to purchase 100 shares of stock in the Ford Motor Company. How much is it going to cost me? investor stock broker

9. Buying Stocks on Margin: Scenario A Well, Ford stock costs $10 per share. You want to buy 100 shares? Figure it out yourself, smart guy! investor stock broker

10. Buying Stocks on Margin: Scenario A Ummm… 100 shares x $10 per share = $1,000.00 Oh, well. I only have $100. I can’t afford 100 shares. investor stock broker

11. Buying Stocks on Margin: Scenario A No, problem! Just give me $100 and you can owe me the rest! investor stock broker

12. Buying Stocks on Margin: Scenario A Like, how much would that be? Let me think… $1,000 worth of stock - $100 paid = $900 owed Alright, it’s a deal!! investor stock broker

13. Buying Stocks on Margin: Scenario A Six months later, Ford stock doubles to $20 per share. My 100 shares are now worth... 100 shares x $20 per share $2,000 investor stock broker

14. Buying Stocks on Margin: Scenario A That’s great! Now pay me the $900 you owe me! investor stock broker

15. Buying Stocks on Margin: Scenario A No problemo! It was a pleasure doing business with you! investor stock broker

16. Buying Stocks on Margin: Scenario A Now let’s figure out how much money I made! $2,000 net worth - $900 owed $1,100 profit - $100 initial investment $1,000 net profit investor

17. Buying Stocks on Margin: Scenario B Six months later, Ford stock decreases to $1 per share. My 100 shares are now worth... 100 shares x $1 per share $100 investor stock broker

18. Buying Stocks on Margin: Scenario B Too bad, hotshot! You still owe me $900! investor stock broker

19. Buying Stocks on Margin: Scenario B But I’m broke! What am I going to do! investor stock broker

20. Buying Stocks on Margin: Scenario B I don’t care what you do as long as you pay me back! investor stock broker

21. Speculation • Many people invested in companies that they believed would some day become profitable rather than in companies that were already profitable • This can be very rewarding because the stocks are often inexpensive and if the company succeeds you can make large amounts of money • This is very risky because if the company does not make it you will lose your money

22. Signs of Trouble • Although the economy of the 1920’s was very strong signs of trouble began to appear

23. Signs of Trouble • Overproduction: Massive business inventories---- Increased Supply

24. Effects of Overproduction Farms and factories overproduced beyond the demand. Businesses cut production Demand for goods fell. Workers suffered from wage cuts and lay offs. People had little or no money to spend.

25. Signs of Trouble • Lack of diversification in American economy--prosperity of 1920s largely a result of expansion of construction and automobile industries

26. Signs of Trouble • Not all Americans shared in the Prosperity of the 1920’s • Many farmers and factory workers were unable to purchase cars and houses and thus maintain economic growth • Farm income declined 66% from 1920 to 1929 • By 1929 the top 10% of the nation's population received 40% of the nation's disposable income

27. Signs of Trouble • Huge credit problems • Steady stream of bank failures in late 1920s as customers (many of them farmers) were unable to pay mortgages • Many bankers had invested money in the stock market • Low margins encouraged speculative investment on the part of banks, corporations, and individual investors

28. Signs of Trouble • Decline in demand for American goods in international trade • Some nations, particularly Germany, were experiencing financial crises and inflation and they could not afford to purchase American goods • Unable to pay wartime debts, many European nations borrowed from American banks, further increasing debt • High American protective tariffs discouraged trade * Hawley-Smoot Tariff

29. The Stock Market Crash • By October 1929, margin buying (buying stock on credit) had reached $8.5 billion in loans to stock purchasers • Stock prices began to fall in September 1929. On October 24 (Black Thursday) and October 29 (Black Tuesday), prices fell drastically as sellers panicked. By December $40 billion in stock value had been lost.

30. The Stock Market Crash

31. The Stock Market Crash • President Hoover and business leaders attempted to calm Americans by assuring them that the country's economy was fundamentally sound

32. The Stock Market Crash • People who had invested all their savings in stock lost everything • People that had bought stocks on margin could not pay back banks

33. The Great Depression • Economic Downturn accelerated by stock market crash leads to the Great Depression • One of the most difficult periods in American history

34. The Great Depression • Between 1929 and 1933, 100,000 businesses failed • Corporate profits fell from $10 billion to $1 billon

35. The Great Depression • Between 1929 and 1933, over 6000 banks failed with over 9 million savings accounts lost ($2.5 billion)

37. The Great Depression • By 1933, 13 million workers were unemployed (25% of the work force) and many were underemployed

40. The Great Depression • Malnutrition increased, as did tuberculosis, typhoid and dysentery. • In 1932, 95 people died of starvation in New York City • Many turned to soup kitchens and breadlines for food

42. The Great Depression • Large numbers of homeless workers roamed the U.S., particularly the Southwest, seeking work

46. The Dust Bowl • An environmental disaster in the southern Great Plains during the 1930’s • Severe drought during 1931 caused the soil to dry out and swept the soil away • Farmers had cleared millions of acres of grassland • Grass had held the soil in place • Farmers went bankrupt and moved west

50. President Hoover’s Response • Did not believe that it was the role of the government to provide relief to Americans • Urged Americans to turn to community and church resources (Salvation Army, Community Chest, Red Cross) to meet needs of the poor