2. What makes a Depression Great?
Recession: When your neighbor loses his or her job.
Depression: When you lose your job.
3. STOCK PRICES RISE THROUGH
THE 1920s
Through most of the
1920s, stock prices rose
steadily
The Dow reached a
high in 1929 of 381
points (300 points
higher than 1924)
By 1929, 4 million
Americans owned
stocks
NewYork Stock Exchange
4. THE STOCK MARKET
By 1929, many Americans
were invested in the Stock
Market
The Stock Market had
become the most visible
symbol of a prosperous
American economy
The Dow Jones Industrial
Average was the barometer of
the Stock Market’s worth
The Dow is a measure based
on the price of 30 large firms
5. SEEDS OF TROUBLE
By the late 1920s, problems
with the economy emerged
Speculation: Too many
Americans were engaged in
speculation – buying stocks &
bonds hoping for a quick
profit
Margin: Americans were
buying “on margin” – paying
a small percentage of a
stock’s price as a down
payment and borrowing the
rest
The Stock Market’s bubble was about to
break
6. THE 1929 CRASH
In September the Stock Market
had some unusual up & down
movements
On October 24, the market took a
plunge . . .the worst was yet to
come
On October 29, now known as
BlackTuesday, the bottom fell out
16.4 million shares were sold that
day – prices plummeted
People who had bought on margin
(credit) were stuck with huge
debts
7. FINANCIAL COLLAPSE
After the crash, many
Americans panicked and
withdrew their money from
banks
Banks had invested in the
Stock Market and lost
money
In 1929- 600 banks fail
By 1933 – 11,000 of the
25,000 banks nationwide
had collapsed
Bank run 1929, Los Angeles
8. GNP DROPS, UNEMPLOYMENT
SOARS
Between 1928-1932, the
U.S. Gross National Product
(GNP) – the total output of a
nation’s goods & services –
fell nearly 50% from $104
billion to $59 billion
90,000 businesses went
bankrupt
Unemployment leaped from
3% in 1929 to 25% in 1933
9. CAUSES OF THE GREAT DEPRESSION
U.S. demand
low, despite factories
producing more
Farm sector crisis
Easy credit
Unequal distribution
of income
American Economic
Policy with Europe
10. RURAL LIFE DURING THE
DEPRESSION
While the Depression was
difficult for everyone,
farmers did have one
advantage; they could
grow food for their families
Thousands of farmers,
however, lost their land
Many turned to tenant
farming and barely scraped
out a living
Between 1929-1932 almost ½ million
farmers lost their land
11. EFFECTS OF DEPRESSION
Suicide rate rose more than
30% between 1928-1932
Alcoholism rose sharply in
urban areas
Three times as many people
were admitted to state
mental hospitals as in normal
times
Many people showed great
kindness to strangers
Additionally, many people
developed habits of savings &
thriftiness
13. HOOVER’S PHILOSOPHY
Hoover was not quick to
react to the depression
He believed in “rugged
individualism” – the idea that
people succeed through their
own efforts
People should take care of
themselves, not depend on
governmental hand-outs
He said people should “pull
themselves up by their
bootstraps”
Hoover believed it was the individuals job to take
care of themselves, not the governments
14. HOOVER TAKES ACTION: TOO
LITTLE TOO LATE
Hoover gradually softened his
position on government
intervention in the economy
He created the Federal Farm
Board to help farmers
He also created the National
Credit Organization that helped
smaller banks
His Federal Home Loan Bank Act
and Reconstruction Finance Corp
were two measures enacted to
protect people’s homes and
businesses
Hoover’s flurry of activity came too
late to save the economy or his job
15. Impact Of Depression In Indian Economy
The effect of depression was
felt through a sharp decline in
agricultural prices and a severe
pressure on the balance of
payment of the country.
It did not affect industrial
output considerably or direct
employment because the
newly adopted policy of
protection has given Indian
industry a shelter in domestic
market and also there was
diversion of demand from high
priced imports to low priced
Indian goods.
16. Agriculture
Income fell in Agriculture
prices not because of
output but a fall in prices.
Food crops to Cash
crops cultivation.
Restrictions on Cash
Flow.
Boycott of foreign goods.
17. WORLDWIDE EFFECTS
Australia
Australia's extreme dependence on
agricultural and industrial exports meant it
was one of the hardest-hit countries in the
Western world
Falling export demand and commodity
prices placed massive downward pressures
on wages
Further, unemployment reached a record
high of almost 32% in 1932
After 1932, an increase in wool and meat
prices led to a gradual recovery
18. WORLDWIDE EFFECTS(CONT…)
Canada
• Harshly impacted by both the
global economic downturn and the
Dust Bowl,
• Canadian industrial production had
fallen to only 58% of the 1929 level
by 1932, the second lowest level in
the world after the United States
• Total national income fell to 55% of
the 1929 level, again worse than
any nation apart from the United
States.
19. Germany
Germany'sWeimar Republic was hit
hard by the depression, as American
loans to help rebuild the German
economy stopped.
Unemployment soared, especially in
larger cities, and the political system
veered toward extremism.
Hitler's Nazi Party came to power in
January 1933. In 1934 the economy was
still not balanced enough for Germany
to work on its own.
20. Latin America
Because of high levels of United States
investment in LatinAmerican economies,
they were severely damaged by the
Depression
Chile, Bolivia and Peru were particularly
badly affected
One result of the Depression in this area
was the rise of fascist movements.
22. Outbreak of WorldWar II
causes
US factories flooded with orders
form armaments and munitions
Unemployment decreases and
production increase
Depression ends completely by
the time the US enters the war in
1941
End to Depression
23. Countries Depression Began Recovery Began
United States 1929:3 1933:2
Great Britain 1930:1 1932:4
Germany 1928:1 1932:3
France 1930:2 1932:3
Canada 1929:2 1933:2
Italy 1929:3 1933:1
Belgium 1929:3 1932:4
Netherlands 1929:4 1933:2
Sweden 1930:2 1932:3
Denmark 1930:4 1933:2
Japan 1930:1 1932:3
Poland 1929:1 1933:2
India 1929:4 1931:4
Brazil 1928:3 1931:4
South Africa 1930:1 1933:1
24. What did we learn from the
1929 Crash?
Market can be very unpredictable
Investors must not get caught up in market
bubble illusions
Market forces alone may be unable to achieve
recovery from economic slump
Changes were needed in US economic structure
25. The Depression was not a failure of capitalism or
markets, but rather a failure of the Federal
Reserve.
Monetary policy should maintain price stability –
avoid deflation and inflation.
The Fed should respond to financial crises that
increase the demand for money or threaten to
disrupt the payments system.
Could It Happen Again?