The Nation’s Sick Economy
Industries in Trouble
• Big industries of
• Key industries
the 20s began to
barely making a
weaken- cars,
profit
construction,
consumer goods
• Mining and
• 1925-29-permits
lumbering
for new homes fell
faced
25%
diminished
demands
• Home construction
is an important
economic indicator
Farmer’s struggling
• During warinternational demand
for crops soared
• Prices rose
• Farmers planted more
crops & took out
loans to buy more
land & equipment
Farmers struggling
• To compensate for
falling prices, farmers
boosted production
• Made things worse
• Farm income
decreased by $6
billion
• Farmers couldn’t pay
loans
• Lost farms
• Rural banks
failed
• Government
wanted to help
• Proposed price
supports
Price Supports
• McNary-Haugen
bill proposed
price supportsthe support of
certain prices at
or above market
value by the
government
• 1. Govmt would buy
surplus crops for more
than the market rate
• 2. Govmt would sell
products to rest of world
for less than they were
worth
• 3. pass tax on domestic
food to make up for lost
money
• Vetoed by President
Coolidge twice
Consumers Have Less $ to
Spend
• Farmers income
fell
• Bought fewer
goods
• By late 1920sAmericans
buying less
• Why?
– Rising prices
– Stagnant wages
– Unbalanced
distribution of
income
– Overbuying on
credit
Living on Credit
• People living
beyond their
means
• Credit-buy now,
pay later
–Installment
plan
– Americans
piling up large
debt
– People cut back
spending
Uneven Distribution of Income
• Incomes not
raising fast enough
• 1920s-half nation’s
families earned
$1,500/year
• 1920-1929 income
of wealthiest 1%
rose 75%
• American wages
as a whole rose
9%
• 1929-wealthiest
5% took in 33% of
nations income
• Poorest 40%
earned just over
10%
New President
• Herbert Hoover
• Americans desired to
continue prosperity
they experienced
under Republican
administrations
President Hoover
The Stock Market Comes Tumbling
Down
• BY 1929-many
economists warning
of weakness of the
stock market
• Most people had no
idea there was a
problem
• People continued to
invest in the stock
market
Dreams of Riches in the Stock
Market
• Throughout 20sstock prices rose
steadily
• Many Americans
rushed to buy
stocks
• Many Americans
hoping to get rich
Dreams of Riches in the Stock
Market
• Many investors
engaged in
speculation
– Made stock prices rise
• Made businesses look
worth more than they
were
Dreams of Riches in the Stock
Market
• Many investors
also began buying
on margin
• This worked as
long as prices rose
• If stocks
declined there
was no way to
pay off the
loan
Black Tuesday
• October 29, 1929The bottom fell out of
the stock market
• Known as Black
Tuesday
• People and
businesses tried to
sell stocks before
prices fell further
Black Tuesday
• People who bought
stock on credit
acquired huge debts
• Within weeks
investors had lost
$30billion
Causes of the Great Depression
•
•
•
•
Old and decaying industrial base
Crisis in the farm sector
Easy credit
Unequal distribution of income
Financial Collapse
• People panicked and
withdrew all their
money from banks
• Many banks lost their
money in bad
investments
• 659 banks closed in
1929
Financial Collapse
• By 1933-6,000 banks
had closed
• Wiped out 9 million
individual savings
accounts
• 85,000 businesses
went bankrupt
Financial Collapse
• Unemployment rose
from 3% in 1929 to
25% in 1933
• Many that kept their
job had to take a pay
cut
Worldwide Shock Waves
• Congress makes
things worse
• Pass Hawley-Smoot
Tariff Act-highest tariff
in U.S. History
• Supposed to help
Americans from
foreign competition
Worldwide Shock Waves
• Hawley Smoot Tariff
Act- Reduced flow of
good into the U.S.
– Prevented other
countries from
earning American
currency
• Could not buy American
exports
– Made unemployment
worse
Worldwide Shock Waves
• Many European
countries retaliated by
raising their own
tariffs
• Caused world trade to
reduce by more than
40%