PROSPERITY TO THE CRASH

Goals for today

Understand the major causes and effects of the stock market crash and the Great Depression

In the 1920s: High Hopes

Journalist Lincoln Steffens:“Big business in America, is producing what the Socialists held up as their goal: food, shelter and clothing for all. You will see it during the Hoover administration.”

Business was booming!

The 1920s

Stock Market surges In 1925, the value of all stocks $27 billion By October of 1929, stock values were $87

billion

Many people thought everyone would become rich

Think back to yesterday’s simulation: If people thought the stock market would

continue to go up forever, what would that lead them to do?

But underneath the wealth… There were warning signs that all was

not well

1. Gap between rich and poor2. Personal debt3. Speculation4. Farmers & workers struggle

WARNING SIGNS

Warning Signs

1. GAP BETWEEN RICH AND POOR The Rich:

Huge corporations – not small businesses – were succeeding

In 1929, 0.1% of the population had 34% of the country’s total savings

Secretary of the Treasury, Andrew Mellon, gave the largest tax cuts to the wealthiest Americans

The Poor: 71% of individuals and families earned

less than $2,500 a year 80% of families had no savings

Warning Signs

2. PERSONAL DEBT People believed that America was

becoming more and more prosperous They started buying more, and going

into debt

Warning Signs

3. SPECULATION Speculation: Making high-risk

investments, hoping to get a huge return Buying on margin: Investors could

purchase a stock for a fraction of the price (10-50%) and borrow the rest. If the stock went up, people could make lots of money.

Two questions…

In yesterday’s simulation: How did speculation and buying on margin

hurt investors? How might they also contribute to an

unstable economy?

Warning Signs

4. FARMERS AND WORKERS STRUGGLE Farms struggled

Farms couldn’t repay money to banks 6,000 rural banks failed during the 1920s

Factory workers also struggled Worked many

hours for little pay

In the Stock Market…

In 1929, prices in the Stock Market reach an all-time high

But a few worried investors started to sell

This led many people to follow their example

Think back to yesterday’s simulation… Why might stock owners want to sell when

they saw others selling? What were they afraid of?

BLACK TUESDAY

October 29, 1929 16.4 million shares traded on this day Market collapses

Effects of the Stock Market Crash1. Risky loans hurt banks2. Consumer borrowing bankrupted people3. Bank runs bank failures

>People all ran to the bank to withdraw their money>Banks collapsed, people lost everything

Ultimately… The Stock Market Crash leads to the

Great Depression

Too much for sale, too little to spend

Other Causes

Bank Failures

Banks were hurt by crisis because the money they lent out was not being repaid.

Banks closing at high rates, especial in rural areas

People ran to banks to withdraw their money. When banks ran out of money, they had to close.

People lost their savings.

Overproduction By 1920s, factories were using assembly-line

methods and producing a lot of goods. Overproduction – more products are created

than people can afford to buy Factories had to cut-back costs and lay people

off

Underconsumption

Underconsumption – people were not buying as much as the economy was producing.

By 1929, people who could buy cars, radios, etc. already had them.

Few rich did not buy enough, many poor did not spend enough

Video Clip

Boom to Bust, questions 1-4

After the crash…

Industrial production fell by 50% 12 million people were unemployed Businesses closed, people had no

money, families starved or scraped by

Government makes things worse FED increases interest rates

Effect- less money moving around in the economy

Hawley-Smoot Tariff Act- Tax placed on imported goods (it was meant to protect US businesses) Effect- Reduction in trade hurts US

economy even more!

Video Clip

Questions 5-9

Next step

Map the causes and effects of the stock market crash visually

Great a graph, chart or visual aid explaining the causes of the crash and its effects