GREAT DEPRESSION 1920S ECONOMY

AMERICA MADE LOTS OF MONEY DURING THE 1920S Higher productivity and consumer demand (people wanting to buy things) led to increased business profits Companies began investing increasing amounts of money in the stock market For most of the 1920s, the stock market was a bull market (generally rising stock prices)

OPTIMISM Everyone (people, business, banks and government) thought the economy would continue to grow People were optimistic about the future and therefore willing to take risks to improve their situation

OPTIMISM (CONTINUED) They borrowed money to be able to buy a car, a home or stocks (things that until that time were not affordable) Banks were optimistic about the future and therefore were very willing to take risks by lending money to people or businesses (“easy money”)

DEMAND SLOWS DOWN As long as demand stayed high (people kept buying things), rising productivity meant growing profits (wealth) By the late 1920s most of the people who could afford cars, large appliances and radios had already bought them, often on installment plans

DEMAND SLOWS DOWN (CONTINUED) During the late 1920s people began to be concerned that they owed too much money and stopped buying as much as they had been When people stop buying, businesses slow down and become concerned that they are not selling and start to “lay off” workers When businesses slow down, investors become concerned that the stocks for these businesses are not as valuable anymore and start to sell the stocks

STOCK PRICES FALL If everyone is selling their stock and no one is buying, the prices go down…and down…and down Now people have lost their jobs, investors have lost their stock investments, and they all owe the bank money to repay their loans and they can’t pay

BANKS RUN OUT OF MONEY The banks now have no money and therefore can’t give back money to the people that have deposits in the bank

INCOME INEQUALITY An unequal distribution of wealth in the US only intensified the problem For example, in 1929, the top 5% of Americans earned 1/3 of all income while the bottom 40% earned only 1/8 of all income

LOWER TRADE During the 1920s European countries were still recovering from the devastation of WWI This eventually leads to Hitler’s power (do not ask questions about this, we will get to it later) European consumers did not have the money needed to buy many American goods

AMERICA FALLS INTO RECESSION AND DEPRESSION Now people are without jobs, without investments, and cannot get any of their money out of the bank Businesses have no money because they can’t sell anything and their stocks are worthless Banks have no money because people and businesses cannot repay their loans and people won’t put money in the bank after they see that the bank will not give their money back in interest

AMERICA SAD  This starts a recession and eventually a depression