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Nation’s Sick Economy

Nation’s Sick Economy. Chapter 22 Sect 1 Pg 670. Economic Troubles. Industries Basic industries (textiles, railroads, steel) barley made a profit in the 1920’s. Ex. Coal mining was no longer in demand b/c of alternative energy sources. (gas, oil) Farms Suffered the most

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Nation’s Sick Economy

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  1. Nation’s Sick Economy Chapter 22 Sect 1 Pg 670

  2. Economic Troubles • Industries • Basic industries (textiles, railroads, steel) barley made a profit in the 1920’s. • Ex. Coal mining was no longer in demand b/c of alternative energy sources. (gas, oil) • Farms • Suffered the most • During WWI, prices rose. • Farmers planted more crops & bought new equipment on credit. • Demand fell after WWI, farmers increased production causing prices to decline. • Many lost farms b/c could not pay back loans. • Banks who loaned farmers money then began to close.

  3. Economic Troubles • Farms Cont. • Congress passed the McNary-Haugen bill. • Called for federal Price-Supports – gov. would buy surplus crops at guaranteed prices & sell them on the world market. • Consumers spend less • Americans were buying less b/c • Rising prices • Stagnant wages • Unbalanced distribution of wealth • Overbuying on credit

  4. Distribution of Wealth • Rich got richer & poor got poorer • Most Americans could not participate in the economic advances of the 1920s.

  5. Living on Credit • Most Americans bought goods on credit during the 1920s. • Credit – an arrangement in which consumers agreed to buy now & pay later. • People then had trouble paying off their debt. • Consumers cut back on spending.

  6. Election of 1928 • Republican Herbert Hoover vs. Democrat Alfred E. Smith • Hoover • Mining engineer / Secretary of Commerce • Never run for public office • Quiet & reserved • 1 advantage: could point to years of prosperity under Republican administration. • Smith • Career politician & governor of New York • Personable & enjoyable

  7. Dreams of the Stock Market • Americans have confidence in the economy. • Stock Market became the symbol of prosperity. • Dow Jones Industrial Average – a measure based on stock prices of 30 representative firms on the stock exchange. • Most widely used measure of the health of the stock market.

  8. Dreams of the Stock Market • Americans rush to buy stocks hoping to “strike it rich”. • Engaged in speculation – buy stocks & bonds on the chance that they will rise, ignore risks. • Many began buying on margin • Paying a small percentage of a stock’s price as a down payment & borrowing the rest. • People who bought on margin had no way to pay off loans in the stock goes down.

  9. Stock Market Crashes • In Sept. 1929, stock prices peaked & fell. • Confidence in the market fell & investors quickly began pulling out. • Black Tuesday – October 29 the bottom fell out of the market • Share holders tried to get rid of stocks before prices plunged lower. • People lost savings & were left w/ huge credit debts.

  10. Stock Market Crash Which do you see as the biggest cause? Why?

  11. Bank & Business Failures • People panicked & withdrew money from banks. • Banks had invested money in the stock market and lost so many people could not get their money from banks. • Half of the nations banks closed. • Businesses began to go bankrupt. • 90,000 businesses closed during the depression.

  12. Bank & Business Failures • People lost jobs. • 25% of Americans were unemployed during the depression.

  13. Worldwide Shock Wave • European countries also faced depressions. • Most countries were trying to recover from WWI & had huge war debts to pay. • Germany’s war reparations also hurt the world economy. • U.S. depression furthered the world depression b/c Americans were not importing foreign goods. • Farmers had difficulty selling food overseas b/c Americans were not buying foreign manufactured goods.

  14. Worldwide Shock Wave • Hawley-Smoot Tariff Act – established the highest protective tariff ever. • Designed to protect American businesses from foreign competition. • Caused unemployment to soar.

  15. Causes of the Great Depression • Tariffs & war debt policies that cut down the foreign market for American goods. • A crisis in the farm sector. • The availability of easy credit. • An unequal distribution of income.

  16. Critical Thinking Questions • How did diminished demand affect farmers and businesses in the 1920s? • How did falling incomes affect consumer behavior? • How did popular perceptions of prosperity influence the election of 1928? • What happened on October 29, 1929? • How did the stock market crash help cause the Great Depression? • What happened to banks and businesses in the economic collapse? • How did the Great Depression affect other countries? • How did the decrease in world trade affect overall economic activity?

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