The Stock Market The Stock Market Crash Crash

Angela BrownAngela Brown

Chapter 22 Section 2Chapter 22 Section 2

Stock MarketStock Market

1928 1928 Dow Jones Dow Jones Industrial Average Industrial Average - average of stock - average of stock prices of major prices of major industriesindustries

March 1929 risen March 1929 risen another 122 pointsanother 122 points

September 3 all-September 3 all-time high of 381time high of 381

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The Market CrashesThe Market Crashes

Prices for Prices for many stocks many stocks soared far soared far above their above their real value in real value in terms of the terms of the company’s company’s earnings and earnings and assets.assets.

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Black ThursdayBlack Thursday

Stocks fell slowly.Stocks fell slowly. Some stockbrokers Some stockbrokers

called in loans –called in loans –others continued to others continued to lendlend

Dropped 21 points Dropped 21 points in an hour Oct. 23in an hour Oct. 23

Oct 24 investors Oct 24 investors began to sell – began to sell – stock prices fellstock prices fell

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Business, Business, political political leaders told leaders told country not to country not to worry.worry.

$3 billion $3 billion paper loss on paper loss on the stock the stock exchange in a exchange in a single day.single day.

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Black TuesdayBlack Tuesday

To stop panic, a To stop panic, a group of bankers group of bankers pooled money to pooled money to buy stock.buy stock.

Stabilized prices Stabilized prices for a few daysfor a few days

Investors raced to Investors raced to get their money get their money out of the stock out of the stock market.market.

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Black Tuesday, Oct. 29, 16.4 million Black Tuesday, Oct. 29, 16.4 million shares were sold, compared with shares were sold, compared with average 4 million to 8 million shares average 4 million to 8 million shares per day = GREAT CRASHper day = GREAT CRASH

Continued to fall November 13 198.7 Continued to fall November 13 198.7 from 381 - $30 billion total lossesfrom 381 - $30 billion total losses

Business CycleBusiness Cycle – periods of – periods of economic growth, then contractioneconomic growth, then contraction

From Riches to RuinFrom Riches to Ruin Took time for people to Took time for people to

recognize the extent of the recognize the extent of the disaster caused by the crash.disaster caused by the crash.

People whose entire wealth People whose entire wealth did not depend on the stock did not depend on the stock market, life went on much as market, life went on much as before.before.

Brokers and banks called in Brokers and banks called in loans – people did not have loans – people did not have cash to pay themcash to pay them

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The Crash Affects MillionsThe Crash Affects Millions

1929 4 million of 120 million U.S. 1929 4 million of 120 million U.S. population had invested in the stock population had invested in the stock marketmarket

soon affected millions had never soon affected millions had never owned stockowned stock

Great Depression – a severe Great Depression – a severe economic decline that lasted from economic decline that lasted from 1929 until the U.S. entered WWII in 1929 until the U.S. entered WWII in 1941 (12 years)1941 (12 years)

Americans lost Americans lost jobs, farms, homesjobs, farms, homes

Ripple effect Ripple effect produced world produced world turmoil for yearsturmoil for years

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Impact on Workers and FarmersImpact on Workers and Farmers

1931 Ford shut down Detroit 1931 Ford shut down Detroit automobile Factories – 75,000 out of automobile Factories – 75,000 out of workwork

European workers had government European workers had government unemployment insuranceunemployment insurance

1932 ¼ labor force out of work (12 1932 ¼ labor force out of work (12 million)million)

The Gross National The Gross National Product (GNP) – Product (GNP) – total value of total value of goods and services goods and services a country produces a country produces annually ($103 annually ($103 billion in 1929)billion in 1929)

1933 GNP 56 1933 GNP 56 billionbillion

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Banks CloseBanks Close Banks exist on Banks exist on

interest earned interest earned from lending out from lending out deposits.deposits.

People rushed to People rushed to withdraw money.withdraw money.

5500 banks failed.5500 banks failed. 1933 money from 9 1933 money from 9

million savings million savings accounts vanished.accounts vanished.

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Impact on the WorldImpact on the World

International banking manufacturing, International banking manufacturing, trade made nations interdependent.trade made nations interdependent.

Global economic system crumbled.Global economic system crumbled. U.S. had insisted France, Britain U.S. had insisted France, Britain

repay war debt.repay war debt. Import taxes high = hard for Import taxes high = hard for

European nations to sell goods in European nations to sell goods in U.S.U.S.

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Allies relied on Germany’s Allies relied on Germany’s reparations for payments.reparations for payments.

Depression – investments fell off – Depression – investments fell off – Germany suspended reparations – Germany suspended reparations – Allies stopped paymentsAllies stopped payments

Europeans couldn’t afford to buy U.S. Europeans couldn’t afford to buy U.S. goods = downward cycle in global goods = downward cycle in global economyeconomy

Causes of DepressionCauses of Depression

OverspeculationOverspeculation Speculators bought stocks with borrowed Speculators bought stocks with borrowed

money, pledged those stocks as collateral money, pledged those stocks as collateral to buy more stocks.to buy more stocks.

Collateral Collateral is an item of value that a is an item of value that a borrower agrees to forfeit to the lender if borrower agrees to forfeit to the lender if the borrower cannot repay a loan.the borrower cannot repay a loan.

Stock market boom was based on Stock market boom was based on borrowed money and optimism instead of borrowed money and optimism instead of real value.real value.

Government PoliciesGovernment Policies

Federal Reserve System, which Federal Reserve System, which regulates the amount of money in regulates the amount of money in circulation, cut interest rates to spur circulation, cut interest rates to spur economic growth.economic growth.

1929 limited money supply to 1929 limited money supply to discourage lending.discourage lending.

Too little money in circulation to help Too little money in circulation to help the economy recover.the economy recover.

An Unstable EconomyAn Unstable Economy National wealth was National wealth was

unevenly distributed unevenly distributed (saved or invested (saved or invested rather than buy rather than buy goods).goods).

Industry produced Industry produced more goods than more goods than could sale.could sale.

Farmers and workers Farmers and workers not part of boom.not part of boom.

Unevenness made Unevenness made rapid recovery rapid recovery impossible.impossible.

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