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PROSPERITY SHATTERED

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

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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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