topic: the stock market crash aim: why did the great crash produce a ripple effect throughout the...

Topic: The Stock Market Crash

AIM: Why did the Great Crash produce a ripple effect throughout the nation’s

economy?

The Market Crashes• Before the panic in October, most people saw no

reason to worry

• Dow Jones Industrial Average average of stock prices of major industries

• Rising stock prices dominated the news

• Prices for many stocks soared far above their real value in terms of company’s earnings and assets

I. Stock Market Crash

• On Tuesday, October 29, 1929, stock prices plummeted.

• This became known as Black Tuesday.

Causes of the Great Depression

Black Thursday• After peak in September, stock prices slowly fell• Some brokers began calling in loans, but others

continued to lend even more• Wednesday, October 23 Dow Jones average

dropped 21 points in an hour• Thursday, October 24 worried investors began to

sell and stock prices fell– Business and political leaders told people not to worry

Black Tuesday• Investors all over the country races to get their

money out of the stock market

• Black Tuesday October 29, 1929, the day on which the Great Crash of the stock market began

• Great Crash the collapse of the American stock market in 1929– Overall losses totaled $30 billion

Crowd gathering on Wall Street after the 1929 crash

Economic Crisis• Great Depression the

most severe economic downturn in the nation’s history, which lasted from 1929 to 1941

Farms and factories overproduced beyond the demand.

II. Overproduction / Reduction in Purchasing

People had little or no

money to spend.

Demand forgoods fell.

Businesses cut production

Workers sufferedfrom wage cuts

and lay offs.

• Many people lost their life savings.

III . Bank Failures

• When the stock market crashed, people could not repay their loans to the bank.

• Therefore, banks couldn’t give depositors their money and banks closed.

Additional Causes Leading to the Crash

• Uneven prosperity-Wealth was controlled by a small percentage of the population.

• Personal debt- Installment Buying

• Playing the stock market– Speculation– Buying on Margin

• Poor conditions of farmers and workers

The Ripple Effect of the Stock Market

• Initially the effects of the Crash were felt only by those who were heavily invested in the market

• Within a short time, the effects of the Great Crash began to ripple through the nation’s economy

How the Effects of the Crash Spread to All Americans

• Risky Loans Hurt Banks– Banks loaned huge sums of money to many high-

risk businesses

• Consumer Borrowing– When banks called in loans, customers did not have

cash to pay them

• Bank Runs– Fearful that banks would run out of money, people

rushed to make withdrawals from their accounts– To pay back deposits, banks had to call in loans

from borrowers• Many could not repay loans

– Banks could usually not get money fast enough to pay all depositors money they demanded

Bank Run

• Bank Failures– Combination of unpaid loans and bank runs meant

that many banks failed

• Savings Wiped Out– Bank failures wiped out what little savings people

had

• Cuts in Production– Businesses now could not borrow money to use to

produce more goods• Few people had money to buy goods

• Rise in Unemployment– As businesses cut back on production, laid off

workers– Unemployment grew

• Further Cuts in Production– As unemployment grew and income shrank,

consumers spent less and less money

Who felt the effects of the Great Crash?

Line outside state employment office

Great Depression: man lying down on pier, NYC docks, 1935

Impact on Workers and Farmers• Factories throughout the country began to close

– Workers lost jobs– Pay cuts

• Restaurants and other small businesses closed because customers could no longer afford to go to them

Impact on the World

• International banking, manufacturing, and trade had made the nations around the world become interdependent.

– When world’s leading economy fell, the global economic system began to crumble

Great Depression Statistics

• 12 million people out of work

• 12,000 people being made unemployed every day

• 20,000 companies had gone bankrupt

• 1616 banks had gone bankrupt

• 1 farmer in 20 evicted

• 23,000 people committed suicide in one year - the highest

Hoover’s Initial Reaction• Capitalism is made up of a series of ups and

downs.– “Prosperity is just around the corner”

• People need to pull themselves out of this trouble. “Rugged Individualism”.

• Government should play only a small role if any to help them. (Charities and Individuals volunteering help)

Hoover Takes Action • At first, President Hoover was against offering direct government relief.

• Instead, he asked private charities, such as the YMCA, to help.

Poverty Spreads• People lost savings

due to bank closings

• Lost jobs and cannot pay rents

• Evicted from homes

New Yorkers queue up in a bread line near the intersection of Sixth Avenue and 42nd Street in New

York City in 1932 during the depths of the Great Depression.

Dorothea Lange's Migrant Mother depicts destitute pea pickers in California,

centering on Florence Owens Thompson, age 32, a mother of seven children, in Nipomo,

California, March 1936

‘Hoovervilles’• Hardest hit were those at the bottom of the economic

ladder

• Hoovervilles term used to describe a makeshift homeless shelter during the early years of the Great Depression– Mocking the president, whom people blamed for not

resolving the crisis

Hooverville

NYC, Central Park

Unemployed workers on Christmas Eve, NYC.

"Hoover wagons", cars pulled by horses, were used by farmers too impoverished to purchase gasoline

Farm Distress

• Farm families suffered as low crop prices cut their income

• Lost farms to banks when they could not repay debts

The Dust Bowl (1931 – 1939)• Dust Bowl term used

to describe the central and southern Great Plains in the 1930s when the region sustained a period of drought and dust storms– “Black Blizzards”– Drought and farming

practices contributed to the dust bowl

• Drought and winds persisted for more than seven years

Causes of the Dust Bowl

• Overgrazing by cattle and plowing destroyed grasses.

• Drought of the 1930s.

• High winds

Black Blizzards

Results of the Dust Bowl

• Migrant workers– People who moved

from one region to another in search of work.

• Packed belongings in cars and headed West. – Locals feared

newcomers would take jobs.

Food Lines in NYC

Young boys waiting for soup at a mission

• Hoover eventually set up public works programs, where the government hired people to construct schools, dams and highways. Ex.) Hoover Dam

The Hoover Dam

Des Moines Register,

April 5, 1930

• Hoover also approved the Reconstruction Finance Corporation (RFC), which loaned money to railroads, banks, and insurance companies.

• In 1932, over 20,000 jobless veterans protested in Washington, D.C. demanding immediate payment.

• World War I veterans were due to be paid a bonus in 1945.

The Bonus Army

Handpainted sign on Bonus Army truck states: "We Done a Good Job in France, Now You Do a Good Job in America"

The United States Army burned this and similar camps to the ground after routing the many thousands of protestors that were camped out in the national capital with tanks, tear gas, and troops of armed soldiers. (July 28, 1932)

• In clashes with police, four veterans were killed.

* The brutal treatment of the Bonus Army lowered Hoover’s popularity even further. The nation was poised for a new leader to lead them out of the depression.

• Hoover ordered General Douglas MacArthur to clear out the veterans using cavalry, tanks, tear gas and machine guns.