The Nation’s Sick EconomyThe Nation’s Sick Economy

What caused the economy to go bad at the end of the 1920s?

Signs of Trouble

• Several industries were struggling at the end of the 1920s

1. Railroad was losing business due to cars/planes

2. Coal mining was down due to electricity/oil

3. Lumber industry suffers due to less houses being built

•Farming also in trouble

Film Clip Question:

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- Crop prices rose after WW I, so farmers grew more crops, causing prices to fall

- Farmers can’t pay debt to banks, banks seize farms/equipment, Congress tries to pass price-supports but Coolidge vetoes

Faltering Economy

•Income gap between the rich & poor were widening

•Late 20s: Consumers were buying less because prices were rising, while wages were not (inflation)

•People were buying too many things on credit in the mid-20s, creating massive consumer debt

•80% of Americans did not put money into savings

Herbert Hoover ElectedHerbert Hoover Elected

• Hoover runs as a Laissez-Faire Republican (similar to Coolidge)

“We in America are nearer to the final triumph over poverty than ever

before.”

• Despite warning signs & unemployment, Hoover states business will fix issue with the economy

• Wins because Republicans ruled over prosperous 20s

Booming Stock Market

•1929: 4 million Americans have invested in the stock market

•Many wanted to make money in the “bull market” so many investors use speculation (buying risky stocks & bonds to make a quick profit)

•Many also buying on margin: paying a small % of a stock’s price as a down payment and borrowing for the rest.

•The Dow Jones Industrial Average (which measure overall stock price) had risen throughout the 1920s

The Stock Market Crashes

• Investors worry about economy, begin selling stock• Stock market plunges on Oct. 24th “Black Tuesday”• By Oct 29th 16.4 million shares were “dumped”• People who had bought on margin now have a huge debt &

worthless stock

● Total investments lost = $30 billion, panic ensues

Financial CollapseFinancial Collapse• People try to pull their remaining money out of the banks• Run on banks causes banks to fail• By 1933 11,000 of 25,000 banks had collapsed

• 1929-1932: 90,000 businesses go bankrupt

•US GNP (amount of goods & services produced) is cut in half

•People stop buying, businesses start laying off employees

- From 1929-1933: Unemployment rate goes from 3% to 25%

Hawley-Smoot Tariff Act• Congress raises tariffs to protect American farmers and

manufacturers• Plan backfires as Europe can’t afford to buy American products• Worldwide trade drops 40%, worldwide depression on the rise

Causes of the Depression1. An unequal distribution of income.

2. New technology hurt many industries

3. Too much debt due to easy credit.

4. People gamble on stock market

5. Banks fail

6. Tariffs hurt American goods worldwide

What do you mean the roaring 20s are over??