Vocab List 20 -Stock Market -Bull Market -Speculation -Margin Call -Bank Run -Installment
The Great Depression Causes & Correlations
I. Background • • A) Remember the Roaring Twenties o Large scale consumption of consumer products o Everyone has vacuum, washing machine, etc o Fueled by CREDIT B) Credit is unsustainable if there is economic uncertainty. o Credit = (ex) Buy a car, pay back what you owe in installments + interest o Economic uncertainty = not being sure that the economy will continue to prosper. o Why? If economy falls then banks have nothing to loan.
I. Background (cont. . ) • • • C) Farm prices drop post WW 1 o Demand for food declines → overproduction → prices fall → farms foreclose. o We saw this post Civil War D) 1925 - Car manufacturing & residential construction slows down. E) *** Bullish Stock Market *** → 10% of americans owned stocks, hoping to make fast $$$.
II. What is the Great Depression? • • • A sad mix of: A) Massive Unemployment - 25% unemployed B) $30, 000, 000 lost in Stock Market Crash of 1929 C) Banks closing with all your savings in it gone D) ***Top 5% Americans earned 30% of nations income (66% lived on $2, 500 per year)*** INEQUALITY = ROOT CAUSE E) Thousands left rural america to cities, to join thousand others in bread lines
III. How the Stock Market Crashed: • • A) Margin Buying - when banks/corporations buy stock with borrowed money. o Bull market ends in 1929 o Everyone sells stocks o Prices decline further o Two tailspins: § Black Thursday - 10/24 § Black Tuesday - 10/29 B) Banks lose Billions → banks start closing as people take out all their $$$ (Dont want to be last!!) → 1 in 4 banks closed by 1932.
Market Crash Video
IV. How the Economy Tanked: • • • → 1929 Stock Market Crashes → 1 of 4 Banks will fail → Depositors demand $$$ back, so banks call in loans → Credit Freezes up → Less $$$ in circulation (deflation) → Prices of products go down → To cut costs, businesses lay off workers → Workers cant buy anything → Inventory builds up → Banks not lending $$$ so businesses can’t get loan to pay remaining workers → Many businesses go bankrupt → More workers now cant buy goods/services to keep businesses open.
V. Other Important Factors • • A) World Economy Also tanked o Remember To. V → Germany owes France/GB $33 B o Germany had to borrow from USA o GB/France owe USA $10 B in war debt o GB/France planned to pay with German reparation o BUT when Credit Freezes → Cant loan to Germany → Cant pay GB/France → Cant pay us back B) → Few folks abroad could buy American Goods. o World Economy comes to halt.
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