Objectives: Examine the causes and effects of the

crash

Do Now: List things you know about the current economic issues

in the United States.

Causes of the Depression

An introduction to the decade

Many causes contributed including

Stock Market SpeculationPoor FED policiesTariffs Misdistribution of WealthFarming ProblemsOverproduction

…to Bust

Endless Riches!!!Case 1Charles Ponzi—Used

investments to dupe investors into believing they were making money while pocketing most of it1919– Promised $15 return

on $10 loans over a 90 day periodSaid he would buy foreign

currency at low price and sell it at high

People gladly investedPonzi collected 1million a weekCollected 15 million in 8 months

and only returned 200,000. “Ponzi Scheme”

Case 2Florida land speculation

Investment in “The Sunshine State”

Land offered at 10% downOften far inland from

beachSwampland Hurricanes in 1926

Prices skyrocketed143 million in1925 = 1

billion in 1928

Case 3

Stock Market investment Throughout 1920s a steady increase 1928 and 1929 investment soared

Results

Causes10% margin ---Why?

Investors promised richesOthers were inspired by success

March 3 to September 3 1928Westinghouse—91.6 to 313 AT&T 179 to 3351.5 million Americans had invested

“Black” Days

October 24th (Thursday) stocks plunged Bankers meet at J.P. Morgan

and agree to invest to increase confidence

Sep. 24, 2008, Guardian reports,“Markets boosted as Warren Buffett invests $5bn in Goldman Sachs”

Investors still panicked Rumors of speculators

committing suicide and govt. troops surrounding exchange to protect investors

Hoover states, “fundamental business of the country…is on a sound and prosperous basis.”

Bush states, "I say that the fundamentals of our nation's economy are strong.” on Sep. 30, 2007`

Friday- SteadyOn Monday key stocks

tumbledAt opening bell on “Black

Tuesday,” October 29, 1929 Sell! Sell! Sell!

By 1932 stocks were valued at 12% of what they had been in 1929

Stock statistics

Not quite as dramatic but…

Familiar Patterns

Miami

Poor FED policies

Federal Reserve BoardRaised Interest Rates

in 1930 and 1931 Why? To prevent

further investment Results– Disastrous

• International Loans

• Personal Loans

• Bank Loans

December 17th, 2008 “Fed cuts key interest rate to record low: zero to 0.25%”L.A. Times

Rate Cut Video

John Maynard Keynes (Canes)

Keynesian Theory

When recession– Government should find a way to revitalize the

economy

This is what FDR tried to do

Hawley-Smoot Tariff Act

Throughout the 20s farmers looked to boost the demand for domestic farm-goods.The 1930 Tariff Act (Hawley-Smoot) increased

taxes on 75 different imported goods by 40%Also placed Tariffs on 925 manufactured

products.Results– You should have this down by now…so???

Maldistribution of Wealth

The 1920s led to a widening gap between the rich and the poor If wealth would have been

distributed more evenly, the depression may not have been so deep or lengthy

A growing share of the income pie, plus decreasing tax rates to boot. Not a bad deal. Unfortunately, it's a deal that's enjoyed by just 1% of the richest Americans. That hallowed group enjoyed 22% of the nation's adjusted gross income in 2006, and saw its average tax rate drop to an 18-year low. That's the latest from the IRS' income statistics division.

Wall Street Journal