bellwork what is a depression? what are some signs of a booming economy? (how do you know when an...
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BELLWORK• What is a Depression?
• What are some signs of a booming economy? (How do you know when an economy is doing well?)
• How would you cut back on your expenses if your cash funds were severely limited?
• THINKER: Describe what it is like to ride a roller coaster: what feelings do you get? How is it structured? How can it be scary?
•On this blank sheet of paper:•Draw a roller coaster•Make sure you leave room for notes and descriptions – SUMMARIZE!
1920’s Booming Economy• Increasing Employment: more jobs
after WWI, factories, and urban growth
• Increasing Income
• Prosperity: since people were making more, they were investing in stock at a high value
• Consumer Economy: economy dependent on spending; use of credit
1920’s Unsound Economy• Towards the end of the 1920’s the economy
started getting worse…..• Uneven Prosperity: tax cuts for the wealthy; rich
got richer• Personal Debt: luxury items seem affordable
with credit, but no one could pay it off• Playing the Stock Market: Speculation – high
risk investments for a big return• Overproduction: Originally high demand, but
now, too much product. Companies lost A LOT of money!
Personal Debt
Speculation
• Stock market speculation-
• Making very high risk investments with the hope of huge returns.
• Elevated prices to false values
• “Have to bet big to win big”
How Stocks Work• Companies are made up of stocks
• Stocks (shares): small portions of the company that can be bought and sold for a given amount of money.
• When a company does well (makes a profit), the stock increases in value.
• When a company does poorly (loses money), the stocks decrease in value.
• The Stock Market: the place where stocks are bought and sold.
The Case of Circuit City• Opened in 1949 as a retailer of brand-name
electronics, computers, and entertainment systems.• Joined the stock market in 1984 – fairly successful• 2003: eliminated commission sales, 4000
employees laid off• As of 2005, Circuit City held $1 billion in
investments• 2007: Management Turnover, 3500 more jobs lost• 2008: CEO resigned, closed 155 stores, laid off
17% of workers• 11/10/08: filed for Bankruptcy, $2.32 billion in debt• 1/16/09: announced they were going out of
business – closing all U.S. stores
• All these factors combined until October 29, 1929 when. . . . . .
• THE STOCK MARKET CRASHED!!!!
BLACK TUESDAY
• Inflated stock prices began to fall at a rapid rate.
• 16.4 million shares were immediately sold
• Sold at much lower prices than for what they were bought= huge financial losses for sellers.
• Sends economy into a downfall.
• “Anyone who bought stocks in mid-1929 and held onto them saw most of his or her adult life pass by before getting back to even.”– Richard Salsman
(Stock Broker)
StockAug-1927
Aug-1929
Sep-1929
Oct-1929
Nov-1929
AT&T $169 $182 $304 $230 $222
Detroit Edison Co. $151 $205 $350 -- $195
General Electric $142 $168 $396 $210 $201
Hershey Chocolate -- $53 $128 $108 $68
IBM $93 $131 $242 -- $130
THE AFTER EFFECTS
• #1- IMMEDIATE RESULTS:
• Massive selling of stocks- all for low prices.
• Many investors lose tons of money.
THE AFTER EFFECTS
• #2- Lack of Buying-
• People begin to worry about their money.
• Stop buying manufactured goods- try to hold onto what money they have left.
THE AFTER EFFECTS
• #3- Lack of production-
• With people not buying many goods, companies stop producing much.
• Economy begins to slow down greatly.
THE AFTER EFFECTS
• #4 Unemployment-
• Since people are not buying goods, and people have to stop making goods-
• Workers begin to lose their jobs.
• Many workers have no income.
• In 1929, America’s population was 120 million, but only 4 million held stocks. If this was such a small number, how and why did EVERYONE become affected by the Great Crash?
Ripple Effect of the Crash• The Great Crash spread to the rest of
Americans through the combination of 4 factors:
1.Risky loans hurt banks: businesses could not repay loans
2.Consumer borrowing: consumers did not have the money to repay any loans
3.Rise in unemployment: even greater numbers than before
4.Bank runs: fearful that banks would run out of money, people rushed to make withdrawals from their accounts. This eventually wiped out people’s savings and created bank failures.
• These results of the Great Crash triggered the most severe economic downturn in history.
• The Great Depression: lasted from 1929 until the U.S. entered WWII in 1941.
Impact on Farmers and Workers• As production fell and unemployment
increased, factories began to close.
• Ford shut down his Detroit factories – 75,000 people were laid off.
• Farm prices began to fall – In 1929 wheat was $1.18, in 1932 it was $0.49.
• 12 million unemployed (1/4 of labor force)
• GNP: 1929 - $103 billion; 1933 - $56 billion
Impact on the World
• Countries in Latin America and Europe depended on the U.S. markets for goods, investments and loans.
• Global economic system crumbled. • Americans couldn’t invest in German goods
German banks failed suspended reparation payments Allies stopped paying debts Industrial production fell = FAILURE OF GLOBAL ECONOMY!
CLOSURE• What four factors involved all
Americans in the Great Depression?
• Out of those four, which do YOU feel had the biggest effect on America’s economy? Explain!
• How did America’s depression send the world into a global economic crisis?