The Great Depression Begins
Chapter 14
Section 1 – The Nation’s Sick Economy
Section 2 – Hardship and Suffering During the Depression
Section 3 – Hoover Struggles with the Depression
http://history1900s.about.com/library/photos/blyindexdepression.htm
Ch. 14 Sec. 1 Objectives
• To summarize some of the problems
threatening the American economy in the
late 1920’s.
• To describe the causes of the stock
market crash and of the Great Depression.
• To explain how the Great Depression
affected the economy in the United States
and throughout the world.
The Nation’s Sick Economy
Section 1
• 5 Effects of the Great Depression on the
American Way of Life and Government
– Changed American Way of Thinking
– Government took a more active role in
peacetime economies
– Government assumed responsibility for relief
– Created the Modern Presidency
– Created the Welfare State
The Rise and Fall of the Stock Market
• Stock Market appeared very stable and
strong during the 1920’s.
• The # of stocks traded increased steadily.
• Use of Broker’s Loans increased.
– Money borrowed from banks by stock brokers
in order to purchase stock.
– The stock is used as collateral.
• Property pledged to guarantee a loan.
• Some people were worried that stocks
were inflated, but most didn’t see any
problems.
The Bull Market
• In March of 1928, a large group launched
a buying campaign on General Motors and
Radio Corporation of America. Prices
soared.
• What is it called when the market prices
are rising?
• Bull Market - Is this a normal market?
• NO
Impact of Speculation
• Types of Speculators –
(Very Dangerous)
– Bulls
• Those who buy in anticipation of rising
prices
• Those who buy stock when prices are
rising and then sell it for a profit when the
prices are higher.
– Bears
• Those who sell in expectation of falling
prices
• Investors
– Those who buy stock as an investment for
long terms and who collect dividends.
• Who Dominated the Stock Market in
the 1920’s?
Buying on Margin
• Technique used by many speculators.
• Stock Brokers use a small percent
(10-25) of their own money and
borrow the rest from a bank.
• Broker’s Loans are also Call Loans.
– Loans that can be terminated or called at
any time by the lender or borrower.
– Meant to be short-term. (A few weeks or
months)
Black Tuesday
• Summer of 1929 the London Stock Market
Crashed
• Speculators begin to panic and sell stock
• Prices Fall
• Speculators begin to panic and sell stock
• Prices Fall
• Tuesday, October 29, 1929 the bottom fell
out of the market and it crashed.
Dow Jones Industrial Average
• See Page 467 and 468
• Dow Jones Industrial Average – the
most widely used measure of the
stock market’s health.
• Measure based on the stock prices
of 30 representative large firms
traded on the New York Stock
Exchange.
• Major Moments
– Oct. 28-29, 1929 Dow loses ¼ of its
value in famous Black Tuesday
Crash
– Jan. 1987 Dow breaks 2000
– Oct. 19, 1987 Stock Market Crash on
Black Monday
– July 16, 1997 Dow reaches 8000
– March 29, 1999 Dow reaches 10,000
– Oct. 2007 All time close at over
http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average
14,164
History of the Dow Jones @ http://www.mdleasing.com/djia.htm
Economic Conditions 1929-1933
• National Income Fell from 87.8 Billion to
40.2 Billion
• Stock Dividends decreased 56.6%
• Salaries Decreased 40%
• Manufacturing Wages Decreased 60%
• 25% Unemployment Rate
Election of 1928
• Democrats –
Alfred E. Smith
http://teachpol.tcnj.edu/amer_pol_hist/thumbnail340.html
http://en.wikipedia.org/wiki/Herbert_Hoover
• Republicans –
Herbert Hoover
– Sec. of Commerce
– Headed Food Adm.
During WWI
– Mining Engineer
View Hoover Video @ http://www.hippocampus.org/US%20History%20II
– Career Politician
– 4 time Governor of
New York
– 1st Roman Catholic to
run for President
http://en.wikipedia.org/wiki/Al_Smith
Causes of the Great Depression
• Stock Market Crash
• Slowdowns in Key Industries
– Agriculture
– Construction
– Automobile
•
•
•
•
Uneven Distribution of Wealth
High Production of Goods / Lack of Demand
People Living on Credit
Government Policies
–
–
–
–
Cut Taxes on Wealthy
Cut Loans to Foreign Counties
Raised Protective Tariffs (Hawley-Smoot Tariff Act)
Non-Enforcement of Anti-Trust Laws
• Banking System
– Weak Banking System using funds to invest in stock market