The Great Depression

How could this happen?

I can see clearly now the stock has collapsed!

• The Great Crash was hard to for see because before this fateful day in October everything was going great

• Dow Jones Industrial Average which is an average of stock prices of major industries had been climbing to all time highs

They days before

• On Thursday, October 24th , known as Black Thursday stock prices fell slowly

• Brokers called in their loans but others lent more

• The day before the Dow Jones dropped 21 points in an hour

• Oct. 24th there was a 3 billion dollar paper loss

Black Tuesday

• Also known as the Great Crash

• Brokers had pooled their money to buy stock but only lasted for a few days

• On October 29th, Black Tuesday 16.4 million shares of stock were sold

• The Great Crash, the collapse of the stock market (overall loss= 30 billion dollars)

The trickle down effects

• The first people to feel the effects of the Crash were those heavily involved and invested

• It wouldn’t take long however for it to ripple through the economy and hurt people with no involvement in the stock market

How Could This Happen?

• 1. Risky loans hurt banks- banks earn interest on the money they lend and they loaned huge sums of money. When stocks fell businesses were unable to pay up

• 2. Consumer Borrowing- banks lent consumers a lot of money and they could not pay it back

• 3. Bank runs- people feared the collapse of banks so they all rushed to take out their money and banks could not keep up

• 4. Bank failures- unpaid loans and bank runs forced banks to close (over 1,000)

• 5. Savings wiped out- bank failures wiped out what little money people had saved

• 6. Cuts in production- few people had money to buy and businesses could not get loans, many people lost their jobs

• 7. Rise in unemployment- businesses had to lay off many people

• No eight

The Depression

• The most severe (so far we hope) economic downturn in the nation’s history

• Lasted from 1929 to WW II in 1941

Impact on Farmers and workers

• With little money, no ability for loans or incentives many factories closed

• Thousands of people lost their jobs

• 75,000 just in auto industry in Detroit

• Farm prices fell from an already low (wheat went from 1.18 to .49 a bushel)

• By 1932 12 million people lost their jobs

Impact on world economy?

• Latin America depended on US markets

• Europeans depended on US banking

• The worldwide economy started to crumble

Underlying Causes of the Depression

• 1. unstable economy- (sound familiar?) the economy of the 1920’s lacked a firm base

• Wealth was unevenly distributed and based on money that was not there

• 2. Over speculation- stocks were bought with borrowed money, the stock market boom was based on borrowed money, oops!

• 3. Government policies- Federal Reserve cut interest rates to spur economic growth but limited money supply

• Not enough money in circulation and too little too late!

• http://www.english.uiuc.edu/maps/depression/photoessay.htm