Economic Collapse

1
Economic Collapse

• As we go through the notes, draw a spoke diagram
  like the one below.

Stock Market Speculation
Bank Failures
Causes of the Great Depression
2
The Postwar Economic Boom

• Twenties Prosperity
• Herbert Hoover, 1928 Our American experiment
  in human welfare has yielded a degree of
  well-being unparalleled in the world. It has
  come nearer to the abolition of poverty than
  has ever been realized before.

3

• Economic boom affected society
• Americans were earning more money than ever
  before.
• U.S. factories increased the number of goods they
  produced as technological advances allowed some
  some work to be mechanized.
• By 1929, the U.S. stock market was at an all-time
  high.

4
The Depression Foreshadowed

• Unemployment was on the rise, farmers were losing
  their land, and stock prices were dropping.
• The number of Americans living in poverty
  increased
• Few people could afford the luxury goods being
  produced by U.S. industry.
• Oct 29, 1929 launched the longest and mot
  devastating depression in U.S. history.

5
Crash as just one factor

• The stock market crash lowered the U.S.
  economys resistance to the point where already
  existing defects could multiply rapidly and bring
  down the whole organism.

6
Key Causes

• Republican domestic and international economic
  policies,
• Unchecked stock speculation
• Weak and unregulated banking institutions
• Overproduction of goods
• The decline of the farming industry
• Unequal distribution of wealth

7
Republican Economic Policies
8
Domestic Economic Policies

• Republican president Calvin Coolidge (1923-1929)
• The business of America is business.
• He and republican successor Herbert Hoover
  implemented many pro-business policies based on a
  doctrine of trickle-down economics and a
  conservative approach to international economics.

9

• Sec. Of Treasury Andrew Mellon
• Economic policies that benefited big business and
  the rich would eventually benefit all Americans
  prosperity would trickle-down from the upper
  class to the middle and lower classes.
• If the government provided businesses and wealthy
  individuals with significant tax cuts, they would
  reinvest the money in the U.S. economy.
• Slashed taxes for big business and reduced
  personal income tax for people who made over
  60,000 a year.
• To make up for the loss in revenues, Mellon cut
  govt expenditures and raised taxes for the
  middle and lower classes.

10
Didnt Work

• Corporations devoted their profits to expanding
  their work facilities, increasing production of
  goods, and lining their own pockets.
• Some new jobs were created, but the slightest
  growth was offset by business owners increased
  reliance on machines, rather than people, to
  produce goods.
• Owners kept workers wages low.
• In the end, trickle-down economics simply
  increased the gap between rich and poor.

11
International Economic Policies

• The U.S. lent over 11 billion to Europe
• After the war, most nations were in economic ruin
  and could not repay the U.S.
• Coolidges administration found that idea
  economically imprudent and refused to forgive the
  debts.
• Rescheduled the loan payments and began lending
  the nations even more money in an attempt to help
  them repay the original debt.
• Nations starting defaulting on loans
• Republicans imposed high tariffs on imported
  goods to discourage Americans from buying foreign
  goods.

12
Real Estate Speculation

• The practice of speculation in which a person
  or organization makes a risky investment in the
  hope of making a quick, large profit.
• California real estate boom went bust in the mid
  1920s when the amount of land for sale exceeded
  the demand for new housing.

13
Florida Rush

• Speculators sold the land to other speculators,
  who in turn sold it at even higher prices. Many
  of the land buyers didnt even look at the land.
• Eventually, there were no more buyers and the
  boom was followed by a crash.
• Landowners could not sell their land, and
  therefore could not repay the bank loans they
  used to purchase the property.

14
Unchecked Stock Market Speculation

• As the real estate market went belly-up,
  speculators turned their focus off the stock
  market and to the belly button.
• Investors speculated which companys stock would
  rise and then bought large quantities of the
  stock. They ten turned around and sold the stock
  for a higher price.
• The investors who bought the stock at the higher
  price would sell it at an even higher price.
• The value of many companies stock became
  artificially inflated and bore little correlation
  to the companies actual worth.

15

• Investors would pool tougher other investors
  money and buy large quantity of company socks at
  a cheap motel rate.
• Outside investors would notice the buying frenzy
  and also buy the stock, raising the price of the
  stock.
• At its peak, investors sold their stares.
• Since the demand for the stock was artificially
  generated by the pool operator, the demand and
  consequently the value of the stock, plummeted
  when the operator pulled out.
• Outside investors would then discover the company
  was not a profitable as they had speculated and
  that their stock was worth far less than what
  they had paid. It wasnt worth, Jackya know
  what Im sayin, yo.

16
The Stock Market Crash the Baking Industry
Collapse

• The 1929 Stock Market Crash
• Unregulated Banking Institutions.
• The Banking Industry Collapse

17
The 1929 Stock Market Crash

• Analysts warning that the bull crap market could
  not continue indefinitely made some investors
  shake like a dog crapping peach seeds.
• Stock prices started to fall.
• Oct 24th, investors flooded the NYSE with sell
  orders in an attempt to get rid of their socks.
• Prices plummeted investors started losing money
• J.P. Morgan attempted to stabilize the market by
  purchasing investors stocks at a higher price
  than the supermarket was offering.

18

• Oct 28th investors rushed the stock exchange and
  sold their stocks at a loss of over 4 billion.
• Known as Black Tuesday
• George Baker, who had once made 22 hundred in
  one day lost over 15 and some loose change!
• When interviewed about the losses, he stated
  Its all good, yo.

19
Unregulated Banking Institutions

• The stock market crash triggered a collapse of
  the U.S. banking industry.
• Instability was due in part of Republican policy
  of laissez faire and banks over-extension of
  credit to stock investors and brokers.
• FED regulated banks but didnt have enforcement
  of policies.

20

• The Reserve Board did nothing to prevent banks
  from speculating depositors money on high-risk
  ventures, nor did it demand that banks deep a
  certain percentage of their money on reserve and
  available. In addition, depositors money was
  uninsured. Therefore, when banks folded after
  the stock market crash, their customers had no
  way of getting their money back. Thousands of
  families were instantly impoverished.

21
The Banking Industry Collapse

• Families that had played the market lost all
  their money, depleting already small cash
  reserves.
• Investors who had bought stocks on margin either
  could not sell their stocks at all, or were
  forced to sell them at a fraction of their
  original price.
• As unemployment soared, an increasing number of
  people began defaulting on their mortgages and
  other types of loans.
• As the Depression worsened, many banks had no
  assets, no cash reserves, and no new money coming
  in.
• 6,000 banks closed

22
Overproduction

• Industrial goods
• Agricultural goods

23
Industrial goods

• Technology increased production profoundly.
• Before 1929, American industrial production
  seemed to parallel the course of the stock
  market.
• Consumer demand for goods was very high after WWI
• New machines allowed more goods in less time
• American industrialists believed in unrestricted
  capitalism and unrestricted growth.
• By 1929 many companies had more plants than they
  needed. . . . the market was saturated.

24
Agricultural Goods

• Farmers prospered during WWI.
• New technology
• Supplying war torn Europe
• When Europe started their own production, farmers
  were stuck with a surplus of crops they could not
  sell or sell at a very low price.

25
The Toll on the Farming Industry

• The Farming Industry Decline
• Farmers During the Great Depression
• The Dust Bowl

26
The Farming Industry Decline

• By 1929, U.S. ag. Industry was in deep decline.
• Farmers borrowed heavily from banks to pay for
  new technology.
• Started to default on their loans
• Banks would attempt to auction these banks off.
• Couldnt find any buyers, so banks took the loss.

27
Farmers During the Great Depression

• 1929-1933 farmers income dropped by 50 and
  their property values decreased by billions of
  dollars.
• Hit with a drought so severe that the soil turned
  to a powdery dust that swept across the plains in
  choking black clouds.

28
The Dust Bowl

• Farmers fleeing the Dust Bowl headed for
  California.
• Okies migrating farmers from Oklahoma.
• The dwellings are built of brush, rags, sacks,
  boxboard, odd bits of tin and galvanized iron,
  pieces of canvas and whatever other material was
  at hand at the time of construction. . . Entire
  families, men women and children, are crowded
  into hovels, cooking and eating in the same room.
  The majority of the shacks have no sinks or
  cesspools for the disposal of kitchen drainage,
  and this, together with garbage and other refuse,
  is throsn on the surface of the ground.

29
Unequal Distribution of Wealth

• The Gap between the Rich and Poor
• Purchasing Power is Lost

30
The Gap between the Rich and Poor

• While statistics show that Americans were more
  prosperous in the 1920s, most of the wealth was
  concentrated with a few people.
• 1929 the Federal Trade Commission reported that
  1 of the population possessed over 59 of the
  countrys wealth.
• 60 of U.S. families lived on or below the
  minimum subsistence level of 2,000 / year.

31
Purchasing Power is Lost

• Banks and businesses tried to encourage spending
  by allowing people to buy things on credit..
• Fell deeper into debt as they purchased items
  they could not afford and paid high interest on
  them.

32
Failure of trickle down economics
Decline of international commerce
Overproduction of goods
Unregulated Imprudent Banking regulations
Unequal distribution Of wealth
Causes
Overvaluation of stocks
Avg. persons lack of Purchasing power
Collapse of agriculture