The Roaring Twenties Great Depression Standard 7-4.3 Explain the causes and effects of the worldwide depression that took place in the 1930s, including the effects of the economic crash of 1929.
What is a Stock Bubble?
Roaring Twenties: 1. Economy of the United States experienced an artificial boom in the 1920s. 2. American companies continued producing high volume of goods expecting beneficial trade to continue. 3. American farmers, who had fed the Allied armies and the people of Europe throughout the war = depression. WHY?
Roaring Twenties: 4. The wages of industrial workers remained low. a) People bought goods on installment plans (LAYAWAY) 5. Americans bought stock in U.S. companies, hoping the good times would continue. a) stocks were often bought on credit (on margin), b) but investments were risky as they relied on further business growth. c) This increase in buying stock on margin led to stock values rising quickly WHY? Appeared as if money was easily and quickly made enticing more investors into the risky stock market.
Dust Bowl affects American Farmers Years of overuse of farmland led to erosion of topsoil Years of drought caused crop failures Floods came because the parched land could not absorb the waters The Boll Weevil destroyed cotton crops
Roaring Twenties: 6. Stock Market Decline: a. sales of goods slowed because European consumers could not buy b. companies began experiencing a surplus of goods c. investors began to sell their stock and stock prices began quickly declining d. Creditors began demanding payment for stocks bought on margin e. Investors withdrew their money from the banks to meet their financial obligations. Bank
How do Stock Brokers/Banks Make Money off Stocks?
Keeping up with the Jones
Buying On Margin You want Stock that costs $20 BUT you don t have $20; you can only afford $2 Bank Fronts you money. You give Bank your $2, they pay the remaining $18 so you can buy your stock. If stock prices goes UP ($40) everyone wins-you make a profit off your $2 ($4) and the bank makes ($36) BUT if the Stock goes DOWN, the bank will want the rest of the $18 from YOU
Stock Market Crash 1. Stock Market Crashed on October 29, 1928, known as Black Tuesday When companies lost money because people were not buying goods companies laid off workers unemployment increased surplus goods because of decreased demand sales decreased more lay-offs people went to the banks to withdraw all of their money.
Stock Market Crash a. How did these runs on the banks affect people nationwide? a. Even depositors who had not invested in the stock market lost their savings b. banks had loaned much of their capital $$ a. deposits and loans were not protected by bank insurance at the time. c. While people were losing their savings, banks demanded full payment of their loans ( calling the loan -no protections in place to prevent this occurrence then ) a. in order to reinstate their capital and prevent closure, b. causing citizens with mortgages or other loans to begin losing their homes or other collateral. c. Unemployment and homelessness continued to increase, d. banks and businesses closed,
The Great Depression of the 1930s affected the whole world. 1. Debt caused severe economic problems. a. After WWI Many European nations had to rebuild from the war. b. Germany had to pay reparations (imposed by the Treaty of Versailles). 2. Returning soldiers from the war looking for work or replacing workers who held their jobs during wartime. 3. Wartime spending had stretched many nations financially but had also created jobs to help war effort [TOTAL WAR] a. With the wars end unemployment rose in many nations after the war.
The Great Depression of the 1930s affected the whole world. 4. Germany faced the greatest economic challenges due to the high reparations and the loss of some of its prime industrial land and resources imposed by the Treaty of Versailles. a. hurt trade and production in Western Europe as well b. In 1923, France seized the Ruhr Valley (Germany s main industrial region). 5. Due to all of these financial difficulties and the necessity to rebuild, European nations were not buying and investing in foreign goods, including goods from the United States
The Great Depression of the 1930s affected the whole world. 6. After WWI The US was a creditor of most European nations a. therefore the European economy was integrally linked to that of the US. b. Many nations therefore borrowed money from the United States. c. Germany especially relied on U.S. loans as it was also dealing with the high reparations imposed by the Treaty of Versailles.
The Great Depression of the 1930s affected the whole world. 7. As the U.S. economy worsened in the late 1920s the U.S. could not continue loans to Europe. a. Without these loans, the economies of European nations began to suffer. b. Germany s economy suffered the most c. All Countries Affected i. European nations, no longer able to invest in markets in Africa, Asia, and South America. ii. iii. As these investments decreased, the economies in nations of these other continents began to suffer, by the early 1930s the worldwide depression had begun.
The New Deal 1. Proposed by US President Franklin D. Roosevelt (FDR) in 1932. 2. Programs and policies to: a. increase employment b. regulate the stock market, banks, and business and agricultural production. c. Direct relief d. The New Deal greatly enhanced the national government s role in the economy and in the lives of individuals.
Desperate Times In Germany, a new power was on the rise. People, fearing the worst for their future elected a charismatic man who promised to fix their problems and bring their country into economic prosperity. This leader used the economic conditions to his advantage and soon grew to be the most powerful man in Germany