TSWU

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TSWU

• Discover how the pattern of conspicuous
  consumption in the 1920s led America into the
  Great Depression

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The Postwar Economic Boom
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provided

• Years following WWI known as Roaring 20s
• Many Americans believed U.S. a place of unlimited
  growth, opportunity, and achievement.
• During 20s Americans were earning more money
  than ever before. Between 1922 and 1929 national
  income rose 43
• Americans had more to spend, especially on
  automobiles, but also radios, refrigerators and
  etc.
• Business profits rose by 80
• By 1929 stock market was at an all time high.
• The number of stocks traded doubled between 1927
  and 1929

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provided

• By late 1929 cracks were beginning to show in the
  U.S. economy.
• Unemployment was on the rise, farmers were losing
  their land stock prices were dropping.
• Number of Americans living in poverty was on the
  rise.
• Stock market crash launched the longest and most
  devastating depression in U.S. history.

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Postwar Economic Boom

• The stock market crash
• DID NOT CAUSE THE GREAT DEPRESSION
• it was one of many complex factors.
• Historians agree on 6 key factors
• 1) Republican domestic and international economic
  policies.
• 2) Unchecked stock speculation.
• 3) Weak and unregulated banking
• 4) Overproduction of goods.
• 5) The decline of the farming industry.
• 6) Unequal distribution of wealth

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Republican Economic Policies

• The business of America is business. Calvin
  Coolidge
• Republicans implemented many pro-business
  policies.
• Andrew Mellon, secretary of Treasury, key
  proponent of trickle down economics, believing
  that economic policies that benefited big
  business and Americas wealthiest citizens would
  eventually benefit all Americans.
• Prosperity would trickle down from upper
  classes to the middle and lower classes.
• Mellon slashed taxes for big business and reduced
  personal income tax for wealthy people.
• Despite Mellons projections, the wealth did not
  trickle down to the American worker
• Corporations devoted profits to expanding
  facilities, increasing production, and lining
  their own pockets.
• Owners kept workers wages low.
• Trickle-down economics simply increased the gap
  between rich and poor.
• Coolidges administration refused to forgive war
  debts from WW I.
• Rather than forgive them, as other European
  nations had, he simply rescheduled loan payments
  and pushed Europe deeper in debt.

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Stock Exchange
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Speculation

• Real Estate Speculation
• The practice of speculation- a person or
  organization makes a risky investment in the hope
  of making a quick, large profit
• Early in the decade many investors speculated on
  real estate.
• The migration to California of over one million
  people prompted investors to buy massive tracts
  of land.
• The California real estate boom went bust in the
  mid 1920s when the amount of land for sale far
  exceeded demand for new housing.
• In 1925 many investors left from California and
  went to Florida.
• Many bought land sight unseen, which made scams
  inevitable.
• Unsuspecting buyers owned alligator infested
  swampland.
• Others held beachfront property that was
  actually 6 ft underwater at high tide.
• Eventually there were no more buyers and the boom
  was followed by a crash and decline in property
  values.

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• Stock Market Speculation
• Real estate speculators turned to the stock
  market.
• Investors believed stock market would continue to
  go up indefinitely and companies profits would
  continue to increase.
• Speculators bought large amounts of stocks they
  thought would go up.
• Then they turned around and sold the stock at a
  higher price making a quick, easy profit.
• In this system the value of many companies' stock
  became artificially inflated and did not reflect
  companies actual worth.
• Rampant speculation drove stock prices higher and
  higher.
• Some analysts and investors predicted the market
  was headed for a fall.
• Even President Hoover warned investors to curb
  their speculation and began to sell some of his
  own stack.

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Overproduction

• During the 1920s U.S. industry enjoyed a postwar
  boom that lasted until the end of the decade.
• Postwar technological changes completely changed
  the way American people lived and worked.
• By 1929 companies had more plants than they
  actually needed, and the market was saturated
  with goods that few Americans could afford to
  buy.
• Companies had no concept of the Supply-Demand
  curve
• New technology also helped farmers produce more
  goods than ever before.
• Farmers were often stuck with surplus crops they
  couldnt sell or only at a low price
• Government had not issued any subsidies

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As supply increases
Economic Happy Place!
Demand AND Price decrease
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Farming

• Farming has historically been the backbone of the
  American economy.
• By 1929 farming was in deep decline.
• During 20s farmers borrowed heavily to pay for
  new, technologically advanced equipment.
• As farmers failed to sell surplus crops they
  became unable to repay their bank loans,
  including mortgages.
• Banks often could not auction off foreclosed
  farms and ended up taking a loss.
• Many banks collapse under pressure of non-backed
  loans

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Farmers

• Farmers situation grew worse as the 20s
  continued.
• Between 1929 and 1933 farmers income dropped by
  50
• Couldnt farm due to the lack of rain depletion
  of topsoil
• Property values decreased by billions of dollars.
• A severe drought, known as the Dust Bowl, hit
  Midwestern and southwestern U.S.
• Over 1 million families lost farms between 1930
  and 1934.
• The unrelenting poverty of the American farmer
  contributed to the nations overall economic
  decline and dramatized the gap between haves
  and have-nots.

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Distribution of Wealth

• During the 1920s most of countrys wealth
  remained in the hands of a few people at top of
  economic pyramid.
• As decade wore on, the gap between rich poor
  grew wider, and the distribution of wealth grew
  increasingly unequal.
• 1929 FTC reported that 1 of American population
  possessed over 59 of countrys wealth.
• Experts also estimated that over 60 of U.S.
  families lived on or below the minimum
  subsistence level of 2,000/year.
• Like farmers, other workers struggled to survive
  in the 20s.
• Many workers were replaced by machines. Low wages
  made workers as impoverished as farmers.

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The Crash

• Analysts warnings that the bull market could not
  continue forever made some investors nervous.
• In 1929 many investors began selling their stocks
  while they could still get a high price.
• As investors began withdrawing from the market,
  prices started to fall.
• As stock prices fell, companies slowed
  production, which in turn led to additional price
  drops.
• By October,1929 prices were on a devastating
  downward spiral.

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• Buying on Margin
• 1. Small down payment for stock / bond, then
  the rest on credit
• 2. i.e. 100.00
• a. 10 down for purchase (Cash)
• b. 90 credit (Margin)
• Repay the margin when you cashed in on
  the stok (95-98 returns)
• 3. Allowed almost everyone to participateBull
  Market
• October 1929
• 1. Economy begins to overheat govt. slowly
  raises the interest rate to lower the circulation
  of liquid cash
• 2. Stock Market analyst Roger Babson warned of
  a crash coming, which is going to be immense
• 3. Buyers in the market become worried, and buy
  few stocks lower points lower prices
  concern b/c this means they are not getting the
  return they hoped for.
• 4. October 24, 1929Black Thursday
• a. Nervousbuyers begin to sell
• b. By the end of the day the market has
  dropped 31 points
• c. Friday, Oct 25 the market levels off, and
  investors are ok, but still anxious
• d. Monday, Oct 28 the market looses 11points

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• October 29, 1929-Black Tuesday
• - After three days of stagnant growth, the
  market plummets 49 points
• - People panic, begin to sell all of their
  stockbut there is a problem
• a. As prices fall, lenders begin to collect on
  their margins but when lendees try to sell,
  they are not able to collect as much of a
  return/loss
• b. When they cannot collect the full return of
  their bond / stock they cannot pay the full
  margin back to the lender
• iii. When all is said and done on Tues15
  million shares dumped
• Banking Crisis
• 1. Customers were beginning to default on loans
  / Banks loose liquid assets
• 2. When word that lenders are not getting their
  money back, they go w/d
• i. All at once means the bank cannot give you
  your money / banks begin to close
• 3. People across the nation hear that banks are
  closing
• 4. By the Spring of 1930, over 25of banks have
  been forced to close
• 5. Domino Effect of the banking system