The Great Depression How was a decade of prosperity followed by a decade of hopelessness?

The 1920s: “The Good ole’ Days” 1920s jobs were plentiful home ownership had doubled 1930s Over ¼ unemployed – unemployment rate never dropped below 14 percent until /4 th of work force worked shorter hours reducing their incomes Families were losing their homes, and many starving.

“a permanent plateau of peace and prosperity.” 1920s most home-owning families enjoyed amenities 60% of all households had automobiles More teenagers were attending high school; fewer were working full time. 1930s Many families were going hungry. 26% owned cars in 1920 Children were riding around in freight cars, looking for work

The Great Depression Causes of the Great Depression

1. Unequal distribution of wealth 2% of people owned 60% of wealth 50% of families lived below poverty level – Under $1500/yr Unequal balance between production & distribution

2. Unequal distribution of corporate power Government Policies benefited corporations and those who were wealthy Abandoned anti-trust acts 200 companies owned 50 % of nation’s wealth

3. Poor Banking Structure Small, local banks owned by larger city ban Not backed up or regulated by government Lent out more than they took in

4. High Tariffs and War Debts European countries couldn’t pay WWI debt b/c hit by depression Hawley-Smoot Tariff: placed a high tax on imports – countries retaliate and halt international trade

5. Overproduction in Industry & Agriculture Purchase new machines with credit to increase production – Plan: pay off debt with “increased” income from “increased” sales

6. Buying on Credit Americans bought most durable goods(refrigerators, washing machines, radios, cars…) on the installment plan: some money down at first, followed by a year of monthly payments + interest – By the end of 1920s American consumers bought the following on installment plans: * 60 to 75 percent of cars * 80 to 90 percent of furniture * 75 percent of washing machines * 65 percent of vacuum cleaners * 18 to 25 percent of jewelry * 75 percent of radios * 80 percent of phonographs

7. Playing the stock market People hoped to make a quick buck by purchasing shares of businesses, also known as ______. – part ownership of a company so that when the company prospers so do you! – But…..if the business declines….you lose $$$$

Problems with playing the stock market STOCK SPECULATION – risky move to buy stocks at low price then sell at a high price BUYING ON MARGIN: paying 10-50% of the stock and borrowing the rest from a broker

Example of Buying on Margin The Good EXAMPLE – 1 share is $110 and you pay $10 –You owe stockbroker $100 with 10% interest per month –2 months later the stock doubled ($200)….you sold it –You owe stock broker $120 but make $70 (80-10) The Bad EXAMPLE – 1 share is $110 and you pay $10 –You owe stockbroker $100 with 10% interest per month –10 months the stock didn’t move and the broker wants his money…you sell the stock for $100 –You owe stock broker $90 + $100 =$190…… YOU LOSE

Buying on margin High interest rates Demand payment anytime If stocks fall then don’t have money to pay back Stocks go up Borrowers sell at high price Pay off… –Loan –Interest + make extra $$$ The good The bad

Short term trends that led to the Great Depression 1. WEDNESDAY, October 23 rd – Dow Jones dropped 21pts in an hour before it closed – Dow Jones Industrial Average = an average of stock prices of major industries 2. BLACK THURSDAY October 24 th –investors began to sell and stock prices fell.  JP Morgan & banks tried to stabilize market 3. BLACK TUESDAY/THE GREAT CRASH October 29 th, 1929 – FEAR led to selling stocks  16.4 million shares sold  investors lost over 30 billion dollars

Short term trends that led to the Great Depression The Ripple Effect Caused by the Crash 4. Bank Failures – People are unable to pay loans to banks -More banks close -Fear leads to bank runs (people rushed to the banks to withdraw) 5. Savings wiped out – By 1933 nine million savings accounts vanished

Short term trends that led to the Great Depression The Ripple Effect Caused by the Crash 6. Cuts in production – Businesses have no money to produce.  Lack incentive due to lack of demand. 7. Businesses shut down - By ,000 business closed down 8. Rise in unemployment – As businesses cut back on production, workers are laid off. - went from 1.6million(3%) to 15million(25%)