ch. 14 sec. 1 the nation’s sick economy

Ch. 14 Sec. 1 The Nation’s Sick Economy

Coach Lyons

Economic Troubles on the Horizon

• Industries in Trouble• Key basic industries: railroads, textiles, and steel barely made a

profit• Railroads lost business to new forms of transportation (trucks,

buses, and automobiles)• Mining , lumber no longer had a high demand. Coal mining

was hit hard due to new energy forms: hydroelectric power, fuel oil, and natural gas. By 1930 these new energy sources accounted for more than 50% which had once come from coal.

• Important Economic Indicator: New Housing starts

Economic Troubles on the Horizon

• Farmers in Trouble• After WWI, farm crop prices fell 40%• Between 1919-1921 income fell from $10 billion to $4 billion

or 60%• Farmers in debt had trouble paying off their debts, lost their

farms to rural banks which foreclosed on farms. Rural banks held auctions to off set losses. Rural banks began to fail

• McNary-Haugen Bill – led to federal price-supports. President Coolidge vetoes the bill twice.

Economic Troubles on the Horizon

• Consumers Troubles• Americans were buying less: because of rising prices, stagnant

wages, unbalanced distribution of income, overbuying on credit.

• Production had expanded faster than wages – led to a widening gap between rich and poor.

• Credit – consumer agreement to buy now and pay later • Easy credit encouraged more Americans to go into debt.

Advertising was leading consumers to buy more.• People over extended themselves

Economic Troubles on the Horizon

• Uneven Distribution of Wealth• Between 1920 and 1929 income of the wealthiest 1% rose 79%

while the average American’s rose only 9%• 70% of American families lived below the minimum needed for

a decent standard of living - $2500.• People couldn’t afford to buy the products they were producing• ½ of homes in cities had electricity or a furnace for heat• Only 1 in 10 homes had an electric refrigerator.

Continued Terms and Names

• Dow Jones Industrial Average – a measure based on the stock prices of 30 representative large firms trading on the NYSE, most widely used barometer of the stock health.

• Speculation – buying stocks and bonds on the idea of turning a quick profit. Get rich quick.

• Buying on Margin – paying a small percentage of a stock’s price as a down payment and borrowing the rest.

• Black Tuesday – October 29, 1929. The day the stock market crashed

• Great Depression – the period from 1929-1941 in which the economy plummeted and unemployment skyrocketed.

• Hawley-Smoot Tariff – In 1930 congress established the highest protective tariff in US history.

2. Main Idea – Taking Notes

Stock Market Crash

Lack of Confidence

Speculation Buying on Margin

Lack of Gov’t Regulation

3. Critical Thinking: Making InferencesHow did the economic trends of the 1920’s help cause the Great Depression?

Key industries struggled to make a profit: railroads, textiles and steel. Railroads lost to new forms of transportation. Mining and lumber were no longer in high demand and new housing starts declined, which is going to effect related industries with fewer orders and jobs lost.

Farmers began to feel the effects before other industries did. With rising debt for land and machinery and crop prices falling after World War I, farmers felt the first pains by 1921 when farm income fell by 60% from just 1919. Congress tried to help with price-supports, but President Coolidge vetoed the McNary-Haugen Bill twice.

Consumers were buying less because of stagnant wages and rising prices. This is going to lead to overproduction and under consumption which led to more layoffs and further adding to the unemployed.

4. Drawing Conclusions - PredictingJudging from the events of the late 1920’s and early 1930’s, how important do you think, public confidence is to the health of the economy? Think About: what happened when overconfidence in the stock market led to people

speculate and buy on margin how confidence affects consumer borrowing