Stock Market Crash

Mr. Williams

•What was life like for many Americans during the 1920s?•How did they achieve this lifestyle?

Prosperity of the 1920s•Gross National Product (GNP)• Total value of goods and

services produced in a nation during a specific period•Rose by 30% during the 1920s

Income Disparity•Highest paid 5% of workers received 70% of country’s income in 1929•Remaining 95% combined received only 30%

Stock Market• Stock is ownership in a company

and it is sold in numbers of shares•Buy share: own piece of a

corporation •Value depends on how well the

corporation is doing

•Overall value of the stock market increased nearly 400% during the 1920s •Many Americans invested (put

money into stocks, land, etc.) in the hopes that this would lead to more money for them

•Number of shares being traded rose from 318 million in 1920 to 1 billion in 1929• “If a man saves $15 a week and

invests in good common stocks…at the end of 20 years he will have at least $80,000…$400 a month. He will be rich.” -John J. Raskob 1929

Credit and Market• Buying on margin• Borrow $ from a stockbroker to

cover the difference paid for a share on the market• Example: share cost $1,000 but

investor only pays $500 now and the rest when the stock was sold

Black Tuesday•October 29,1929• Investors sold more than 16

million shares as a result of others selling and prices falling• In October stocks dropped in

value by $16 billion

•What led to the Stock Market Crashing?•Why could the attitudes of the 20s be responsible for this?

Financial Causes of the Crash• Stock markets rise in 20s• Speculation in stock increases•Margin buying encouraged by

Federal Reserve policies• Stock prices rise to unrealistic

levels

Effects on Banks•Peopled rushed to banks to

withdraw their money• Some banks had invested this

money on stock market•More than 5,000 banks went

out of business

Federal Reserve System•Nation’s central bank• Takes actions and sets policies to

regulate nation’s money supply to promote healthy economic activity • Enforced policies to make it harder

for brokers to give out credit

Effects on Business•Banks unwilling to lend

businesses money•Consumers cut back on their

spending •Companies had to lay off

workers and these unemployed workers had no $

Effects Overseas•American banks called in loans•NO $ or demand for their

product, foreign countries also laid off workers•Also, governments from many

countries passed high tariffs

Effect on Farming•Widespread joblessness and

poverty reduced American’s ability to buy food• Farmers produced more food

than they sold and prices went down: 1933 prices half of what they were in 1929

•As incomes dropped, many farmers were unable to make payments on their loans• Foreclosure: When a bank or

other lender takes over ownership of a property from an owner who has failed to make loan payments

Dust Bowl•1931 a drought occurred in

the Great plains•Period of below-average

rainfall which lasted years• This coupled with severe dust

storms destroyed crops

•By end of 1930s about 2.5 million people left Great Plains •Many headed west along Route

66 to California to look for work on farms and orchards•Okies-migrants who went to

California

Hobos and Hoovervilles•Communities of sprawling

neighborhoods of shacks sprang up on the outskirts of towns or in public parks•Hoboes hopped trains to travel

from town to town looking for work