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Chapter 21 Sec 1 Bellringer
Whatof
economic
factors
and conditions
made the
Sale
consumer
goods
declined;
Banks
failed;
investors
lost
American economy appear prosperous in the
rumors
fears grew;
investors
1920s? spread;
money;
consumers
stopped
began
selling
stocks;
stock
pricesin the
What were
the basic
economic
weaknesses
buying;
nearly
3
million
High
gross
national
low
American
economy
in the lateproduct;
1920s?
plunged
Americans
jobs;workers;
rest
unemployment;satisfied
What events ledlost
to thetheir
stock market
crash
of of
Uneven
distribution
of
wealth;
easy
October
1929?
the
world wasofaffected
performance
the stock market
credit;
tootheeasy
toofbuy
stock
oneconomy
What were
effects
the crash
on the
of the United States and the world?
margin
THE GREAT CRASH 21.1
An Appearance of Prosperity
Between 1922 and 1928 the
U.S. gross national product,
or total value of all goods and
services, rose 40 percent.
The value of stocks traded
quadrupled over nine
years.
Overall unemployment
remained low, averaging around
five percent between 1923 and
1929.
The steep rise in stock
prices made people think
the market would never
drop.
Union membership slowed as
employers expanded welfare
capitalism programs, or
employee benefits.
This feeling of prosperity
encouraged leisure activities
such as movies.
The number of shares
traded rose from 318
million in 1920 to over 1
billion in 1929.
The False Sense of Security
Positive economic trends masked the trouble
that lay ahead
The stock market had been booming for a
decade.
Corporate profits soared.
Unemployment was low.
Welfare capitalism and credit increased
workers’ buying power.
Election of 1928
VS.
Herbert Hoover
Alfred Smith
In what
waysvs.
didSmith
the election of 1928
Hoover
represent a conflict over values?
• When Coolidge didn’t run for reelection in 1928, the
Republicans
choserepresented
Herbert Hoover. different
Hoover
andeasily
Smith
• Hoover had been on Harding and Coolidge’s cabinets,
had overseen America’s
food production
World
backgrounds,
religions,
ideas;during
each
War I, and had an outstanding reputation as a businesslike administrator.
appealed
to different groups of
• Hoover’s opponent was New York governor Al Smith, an
outgoing politician with a strong Brooklyn accent, whose
Americans.
support came mostly from cities.
was
the first
Catholic
to
run for president.
He
Do• Smith
you
think
that
the
president
should
faced prejudice because of his religion, and because of
his opposition to Prohibition.
be responsible
when major issues
• Hoover easily won the election, but the race clearly
demonstrated
theUS?
conflicts dividing the nation in that
happen
in
the
era.
In what way was the easy availability of
Wealth
Distribution
credit
a blessing
and a curse?
It allowed Americans to by products, fueled
Only a small # of people made money in the
economic growth; when consumers could
20’s.
not pay their debts, purchasing slowed;
1% Population=60% of the National Income
warehouses were filled with goods.
By 1929 70% were below a good standard
Do of
you
think
advertising
played
a
significant
living.
roleFarmers
in mounting
consumer
debt?
and Coal miners were some of the
Yes,hardest
peoplehit.wanted to buy things that were
advertised.
Credit and the Stock Market
Company
Company A
A Example:
Example: Loss
How it all works?
Investor
buys
100
shares
in
Company
A
@
If
the
stock
price
rose
to
$15
then
If the Stock price dropped to $5 a
$10 a share. Total Price $1000.
the
buyer
would
be atwould
$1500be at
share
then
the
buyer
Investor would put down $500 and borrow
allowing
them
to
pay
back
the
$500
dollars.
This
means
that
the
$500 from a stockbroker.
borrowed
and$500
makedollars
a $500and
Buying
on$500
margin.
buyer
would
loose
dollar
profit.
make just
enough to pay back the
loan.
What was a margin call?
The Federal
Reserve
Demand
for payment
of a margin
loan if a stock’s value fell below a
Nations Central Bank
certain point.
Today the Federal Reserve Board puts strict
Why
doon
you
many
people
limits
thethink
practice
of buying
on margin.
ignored
Babson’s
of amade it
Late 1920’s
the Fed.warnings
Reserve Board
much
more difficult
stock
market
crash?to buy stock on margin.
Roger Babson
warned America
that aso
crash
Because
the economy
had been
was in the future.
strong they probably thought any
slump would be temporary.
Impact of the Stock Market Crash
Video
Stock Market crashes
•September 3, 1929 was the peak in the
market.
Stock Market
Crashes
•Thursday, October 24, 1929 some nervous
investors began selling their stocks.
•October 29, 1929 Black Tuesday
•Within a week the market had dropped in
value by about $16 billion.
ofpeople
the 1929
Stock
Market
WhyCauses
did some
expect
economic
trouble in 1929? Crash
Sales were declining; rumors that big
Financial Factors
Economic Factors
investors
were going
toStock
take
money
out
markets
rise in midPoor distribution
of
1920’s
wealth
of the
market.
Speculation in stock
Many consumers
increases crash
Do relied
you on
think
credita stock market
Margin buying
Credit
dried
up
could occur today? encouraged by Federal
Consumer spending
Reserve policies
Yes,dropped.
large #’s of people could sell stock
Stock prices rise to
andIndustry
pricesstruggled
would plunge;
No,levels
there are
unrealistic
safeguards to prevent it.
The Effects of the Crash
What
did the stock
ImpactImpact
on Individuals
Impact onmarket
Business crash
people were ruined
The crash crushed businesses,
haveMany
on
individual
investors?
In the end many people owed
because banks couldn’t lend
enormous amounts of money to
money.
Almost
all suffered; lostConsumers
savings;
went
their brokers.
also cut back their
spending on everything but
into
debt
Effects
on Banks
essentials and companies were
The crash triggered a banking
crisis.
When investors couldn’t repay
margins, banks lost money, too.
These failures drove many banks
out of business.
forced to lay off workers.
In the year after the crash,
American wages dropped by $4
billion and nearly 3 million
people lost their jobs.
Closing
Bring a
•$16Calculator
billion that was lost in 1929
would be equal to $180 billion
dollars
today. Time!
Next
•A dollar today compared to 1929
would be worth $11.38.