The Stock Market Crash of 1929 and the beginning of the Great

Depression

Opener

• Using your homework from last night…1. What were some signs that the economy of

the late 1920s was healthy?

2. What were some economic warning signs that the economy was heading for a major downturn?

“Blue Skies”

• Wages Up 40% Since 1914!

• Welfare Capitalism– Employers actually compete over employees!

• Offer paid vacations, health plans, recreational programs, etc.

• Inflated Stock Prices– 1925: Stock Values at $27 Billion– Oct 1929: Stock Values at $87 Billion

Warning Signs1. Uneven Distribution of Wealth

• Rich get richer• .1% of population = 34% of county’s savings• 71% of people at or below the poverty level ($2,500 a year).

2. Personal Debt• More and more Americans buy items on credit, become in

debt.

3. Stock Market Speculation• Speculation = attempting to predict stock prices• Buying “On Margin” = using credit to buy stocks

4. Over-productivity• Factories were producing goods faster than Americans could

consume them.• New housing starts down 25% in 1928.

5. Trouble for Farmers• Because of falling crop prices, many farms go bankrupt

Crash

• An Omen– In Sept., 1929, The Dow

Jones stopped its upward climb at 398 points and started to fall.

• Some shareholders sold• Some banks called back

loans, others kept lending.

• “Black Tuesday”– 16.4 million shares of stock

were sold back to brokers.– By early November, 1929,

The Dow Jones was down to 198 points.

The Business Cycle

Depression

Ripple Effects of the CrashEarly on, only about 4 million out of the nation’s population of 120 million lost everything due to the crash. Before

too long, however, the effects of the crash began to ripple through the nation’s economy…

• Risky Loans– Banks loaned money to many investors and high risk businesses. As stock prices fell, both

were unable to repay their loans.

• Consumer Borrowing– Consumers had borrowed money during the 1920s to pay for goods through “installment

plans.” When banks called in these loans, consumers couldn’t pay for them.

• Bank Runs– Fearful that banks would run out of money, people rushed to make withdrawals from their

accounts. To repay money, banks had to call in loans. Many consumers and businesses could not afford to repay loans.

• Bank Failures– Combination of bank runs and consumers/businesses unable to repay loans resulted in

banks closing their doors.

• Savings– Because of bank runs, 9 million savings accounts had been wiped out by 1933.

• Cuts in Production– Businesses could not borrow money to produce more goods. People could not afford

goods, so cuts were made in production.

• Rising Unemployment– As businesses cut back on production, they laid off workers and unemployment grew.

Characteristics of the Great Depression

• Great Depression– Great Crash resulted in largest economic

downturn in history. 1929 – 1941• Effect on Urban Workers

– Factories began to close. – Small businesses and restaurants feel

effects of factory workers being unemployed.

• By 1932, 25% unemployment!

• Effect on Farmers– Urban workers unable to afford farm goods.

Farm prices fall.

Effect on the World

• By 1930s, international trade had made many countries dependent on USA. – Many countries depend on USA

as a market for their goods.– Many countries buy American

goods.– Many countries rely on USA as a

creditor to offer them loans.

US Depression = Global Depression