Chapter 15 The Great Depression Section 1 Prosperity Shattered

Economic Troubles on the Horizon The prosperity of the 1920’s led most Americans to believe the economy would continue to grow By 1929 purchases on credit reached $7 billion Although economic experts warned that such debt could cripple consumers, and identified some potential economical problems, consumers continued to make large purchases they could not afford Investors began pumping their $ into the stock market

Playing the Market Many experts saw no end to the {bull market- one with an upward trend in stock prices.} Investors and analysts stated the market was in no danger of becoming a bear market- downward trend in the stock market By the late 1920’s, {stock speculation or “playing” the market is buying and selling of stocks rapidly to make a quick profit} This inflated the prices to the point that stocks were selling for far more than they were worth The situation was worsened by the practice of {margin buying- buying stocks with borrowed $.} Many put up as little as 10% of the price of a stock and borrowed the rest All of this was fine, as long as the bull market remained. But if prices were to fall, investors would be deep in debt

A 7,000lb 16ft long bronze bull stationed at Bowling Green in NYC is an inspiration of hope and prosperity for Americans

The Stock Market Crashes It all came “crashing” down on {Black Thursday- October 24, 1929} when a large number of nervous investors began selling all their shares On October 29, 1929, Black Tuesday price sank to an all time low when investors panicked and dumped more than 16 million shares of stock Brokers began coming out of the wood work demanding cash for their loans; thousands were forced to sell their stocks at great loss By the end of the year stock losses exceeded the total cost of U.S. involvement in World War I

October 29, 1929. Black Tuesday

The Depression Begins Investors could not pay back their loans they took out with banks either. With depreciating assets, little income and decreasing cash reserves, banks began to close People afraid of losing their life savings, began withdrawing their savings, causing even more banking problems Businesses also suffered because no one could afford to purchase luxury items anymore. Tens of thousands of businesses went under In 1929 the gross national product –total value of all goods and services produced in a given year- had reached $103 billion. At the height of the Depression in 1933 it fell below $56 billion. As businesses failed, unemployment raised from 3.2% to 23.6% in 3 years These issues marked the beginning of a {deep economic downturn lasting from 1929 to the 1940’s known as the Great Depression}

Men leave in search of jobs Children try to evoke sympathy in order to not starve during the Depression Men leave in search of jobs

What Caused the Great Depression (Global Depression) Economic trouble in Europe and other parts of the world was another factor in the fall of U.S. economy This global depression, caused by WWI, caused world trade to rapidly decline. Foreign customers were unable to buy American products U.S. policies could have eased the global depression but instead the U.S. added to the problem by placing high tariffs on imported goods {The Smoot-Hawley Tariff of 1930 was the highest tariff in U.S. history} This tariff eliminated the American market for foreign manufacturers and industries

What Caused the Great Depression (The Income Gap and Consumer Debt) {Some economists believed that unequal distribution of income was another cause of the Great Depression} The disposable income of the wealthy (1% of the nation) increased by 63%. Whereas the income of the poor (93% of the nation) decreased by 4% This income gap meant that most people did not have the buying power needed to boost the economy Many believe that if workers had received higher wages and farmers had better prices for their crops, the Depression would have been less severe. Or may never had happened at all

What Caused the Great Depression (The Business Cycle) {Others argued that nothing could have stopped the depression. Stating that is was an inevitable part of the business cycle}- the regular ups and downs of a business in a free enterprise economy According to business cycle theory, during prosperous times businesses hire more people and increase production. But eventually a surplus builds up and the business must cut back production and then lay off employees, triggering a recession or depression Once the surplus is sold, industries again gear up for production and the down time comes to an end However, the length and severity of the Great Depression went far beyond the normal standards of the business cycle

Review Questions This is a market with an upward trend in stock prices This is “playing” the market is buying and selling of stocks rapidly to make a quick profit This is buying stocks with borrowed $ October 24, 1929 is also known as this deep economic downturn lasting from 1929 to the 1940’s known as what What was the highest tariff in U.S. history? Name another reason Some economists believed was another cause of the Great Depression