Some Basic Background on the Stocks and the Economic Market

1. Some Basic Background on the Stocks and the Economic Market

2. What are Securities? • Securities can be either stocks or bonds which are sold and bought on the stock market.

3. What is the New York Stock Exchange? • World’s largest market place for securities • Currently membership limited to 1,366 members. • Seat obtained by purchasing from existing member

4. Interesting Fact: How did Stock Exchange begin? • The Exchange evolved from a group of men who used to meet under a buttonwood tree on what is now Wall Street in 1792 to discuss securities

5. Before The Crash

6. The Great Bull Market • Great American stock exchange boom of 1928-1929 • Huge bubble where there were high speculations • People made many investments to make big money

7. Bull Market sparked by? • Growth in American industries • Technological progress • Increase in productivity • Rise in national income from 33,200 million to 79,200 million from 1914 to 1925 • Expectation for great future and un-boundless optimism for the market

8. What Sparked This Growth in Industry? • The Electrification of the production process • This expanded the ability to transform raw materials into finished products • Ex. Ford Motors

9. HOWEVER?????? • Wages did not raise even though the production did and prices of products failed to decrease. • There was not an excess demand for labor • Leaving unemployment rate steady

10. Stock Exchange Average Rise in Share Prices 1924-1928

11. Political Promises Spark Market Speculation • Herbert Hoover was the most promising candidate for president because of his ideas which promised increased economic growth in America.

12. Hoover’s Plan • Proposed a Tariff bill which Senator Smoot presented called the Smoot-Hawley Tariff • Promised increased tariffs on imports • Planned to allow more productivity for US manufacturers • Help ease unemployment

13. Investors marvel at This Proposal • Investors believed profits from stocks would increase if the tariff bill was passed • Sparked intense speculation • Dow Jones Industrial Average increased by almost 35% because expected election of Hoover and his bill

14. This Bubble was bound to Burst!

15. The Crash of 1929 • “American economic disaster that precipitated the Great Depression which was approximately a 10 year economic slump affecting all the western industrialized countries.” –Encyclopedia Britannica

16. General Causes of the Crash • Rampant over speculation in market • People holding companies and investment trusts (which by nature creates debt) • Bursting of Bull Market economic bubble in August 1929 • Large bank loans could not be liquidated

17. Direct Cause of Crash of Stock Market • After Hoovers election certain people began to doubt if the tariff bill would help the US Economy • Farmers, America’s trading partners, Democrats, and some Republican’s opposed the passage of new tariffs. • On October 21, 1929 Senate announces plans to limit tariff revisions • October 22, 1929 more limits set on tariff bill

18. Investors Realize Tariff Bill is DOOMED!!!!!!!!!!!!! PANIC! PANIC! PANIC!

19. Black Thursday • On October 18, 1929 prices began to fall • Panic stuck out on October 24 “BLACK THURSDAY” after the announcements from the Senate • Record of 12,894,650 shares were traded

20. Black Thursday (Continued) • Major banks and investment companies bought up great blocks of stocks to stop the panic but…. THEIR ATTEMPTS FAILED!!!!!!!!!

21. Black Monday and Tuesday • The Panic continued and 16,000,000 shares were traded • Prices on the stock market collapsed completely!!!!

22. Hoover’s Plan to combat Crash • Extracted promises from manufacturers to maintain production. • Signed legislation providing generous additional funds to public works • Smoot-Hawley Tariff 1930 (finally passed): to raise duties 50%

23. ALL THESE FAILED TO EASE CRISIS AND DEPRESSION FOLLOWED!!!!

24. Causes of Great Depression • Agriculture had crashed in 1919 and was a continuing source of weakness. • Banks over-extended • Wages had not kept up with profits • In 1920’s consumers were reaching limits of ability to borrow and spend

25. Cause’s of Depression (continued) • Production was declining and unemployment increasing EVEN before the crash! • Destroyed confidence in the economy • Down sizing of industry causing unemployment

26. The Great Depression • The stock prices in the next three years continued to fall • By 1932 prices had dropped to only about 20% of there original value

27. The Great Depression

28. Effects of Depression on Individual • Thousands of individual investors ruined • Loss of savings • Poverty and panic • Less spending and demand • Unemployment • Wages decrease

29. Decline in Production DOWNWARD SPIRAL • little out put means less jobs • Manufacturing output fallen to 54% of its 1929 output • 25-30% of work force unemployed • 12 -15 Million jobless

30. Effects of Depression on Economy • Stock prices drop • Industry declines • Value of assets decline • 11,000 of 25,000 banks fail • Because of tariffs international trade market decreases • Causes a world wide depression

31. World Wide Depression • America’s intimate relationship with Europe causes serious economic troubles overseas and contributes to a world wide depression

32. Reasons America’s Depression Effects World • World War I left Europe with large war debts • America was a major financer and creditor of post war Europe. Once US slumped American investments to Europe dried up • Germany hurt because of large war reparations

33. Reasons (continued) • Nations attempt to protect domestic production with tariffs and having quotas on imports • This only reduced international trade and damaged market even more

34. Hope Shattered • In 1930 there is a slight rise in production and it seems depression might ease however: Spring 1931 the weakening of western European economy causes the major bank in Vienna to crash and Germany defaults on its war reparation payments

35. Hoover’s last Attempts • Hoover proposes one year moratorium on war debt payments • Too little too late • Financial panic: European Government goes off their gold standard and devalues currencies, destroying exchange system (hurts trade) • Europe withdraws gold from US banks

36. Gold Crisis • With draw of European gold from US banks causes • Banks to call their loans on US businesses • Bankruptcies • Bank customers go into ruin • Eventually banks in ruin

37. Hoover’s last Attempts (continued) • Reconstruction Finance Corp- to lend funds to banks, railroads, etc • Glass-Steagall Act- Gold to meet w/ foreign withdraws THESE AND OTHER ACTS FAILED TO PROMOTE RECOVERY!!!! The American People lose faith in Hoover.

38. Franklin D. Roosevelt Wins Presidency • Political and revolutionary thinker • Elected 1932 • Introduced major changes in structure of economy • New Deal

39. FDR’s New Deal • Opposite of Laissez-Faire • Increased government regulation • Massive public works projects for relief of poverty • Aid for the unemployed and unfortunate

40. Some of FDR’s Programs • Civilian Conservation Corp • National Recovery Administration • Federal Deposit Insurance Corporation • Securities and Exchange Commission

41. More Programs • 1935 Wagner Act (authority of Federal government in industrial relations) • National Labor Relations Board • Social Security, unemployment compensation, disability insurance

42. End to Depression • Outbreak of World War II causes • US factories flooded with orders form armaments and munitions • Unemployment decreases and production increase • Depression ends completely by the time the US enters the war in 1941

43. History Repeats?