The Nation’s Sick Economy Chapter 22 Section 1

I Economic Trouble on the Horizon A. Industries in Trouble Prosperity in 20s had weaknesses GD Basic industries not making profits due to new comp. (trucks/private auto.) Construction of new home peaked and fell steadily Housing is econ indic. Because it has spinoff effects on other indust. (lumber/appliances/labor/construction supply & tools) As housing declined so did other businesses that depended on construction

B. Farmers Need a Lift WWI increased demand for food but w. the end of the war demand sunk Farmers increase prod. In hopes of selling moreprices fall more Could not pay loansrural banks forecloselose home & farms Fed gov’t passes McNary-Haugen Bill that called for fed. Price supports Price support=- support of certain price levels at or above market values by the fed, gov’t Bill vetoed by Coolidge

C. Consumers Have Less Money to Spend As incomes fell ppl had less $$ to spend on goods & services Production increases increase divide between rich and poor

D. Living on Credit Many Americans living beyond heir means during 1920s because they bought on credit Credit= arrangement in which consumers agreed to buy now and pay later on purchases via monthly payments that include interest charges Easy availability of creditamericans piling on consumer debtconsumers cut back on spending

E. Uneven Distribution of Income Consumers also spend less because their incomes were not rising Fams could not cont. to afford household products that were being produced As this was happening wealthiest 1% rose by took in 1/3 of nations income Unequal dist. Of wealth meant most Amer. cannot part. In econ advancement of 1920s

II the Stock Market Comes Tumbling Down Economists were warning of series weaknesses in the economy while most Americans remained unaware

A. Dreams of Riches in the Stock Market Prices on stock market rise steadilyAmer. rush to buy stock in “bull market” Bull Market= rising stock market prices Many stock owners were avg Amer. hoping to strike it rich Investors engage in speculation Speculation= engagement in risky business transactions on the chances of big profits

Investors also begin to buy stocks on margin Buying on margin= paying small % of stock’s price as down payment and borrowing the rest (often borrowed 75% of stocks purchase price) This worked as long as stocks rose because they could make large profit and pay back the loan However, if the stock declines, there was no way to pay off the loan

B. Black Tuesday Stocks peak and begin to declineinvestors sold stocks and pulled out of the stock market Oct 24th large plunge in market as panicked investors unload their shares Black Tuesday= the bottom falls out as ppl and corp. rush to sell their shares and market plunges Ppl who bought on credit/margin acquired large debt Ppl who invested their savings lost it all

C. Causes of the Great Depression Great Depression= period from 1929-1941 in which econ was in severe decline and million of ppl were out of work Stock market did not cause the depression but it helped speed up its collapse Factors of the Great Depression Old industrial base- outdates infrastructure Crisis in farming sector- surplus of goods after WWI Easy avail. Of credit- ppl went into buying goods on installment plans Unequal distribution of income- little $ in hands of working ppl who were maj. Of consumers

III Financial Collapse Amer. Began to withdraw their $$ from banks banks close because they cannot cover amount of withdrawals Fed. Gov’t did not insure ppls bank accountsppl lost their $$ when banks closed Other businesses begin to closeunemployment rises

A. Worldwide Shock Waves Europe also suffered during 20s due to high debt of WWI Germ had to pay reparations GD made worse because US couldn’t buy European goods Congress tries to help by passing the Hawley-Smoot Tariff= highest protective tariff in US history Supposed to help American business but it did the opposite as other countries passed their own protec. Tariffs

Europeans bought less Amer. goods because of debt and tariffs Hoover proposes moratorium on allied war debts and Germ. Rep. Moratorium= postponement of payments Britain and other Europeans leave the gold standard Paper $ no longer exchanged for goldgold drops in value