Black Thursday Dow Jones Industrial Average An average
Black Thursday • Dow Jones Industrial Average - An average of stock prices of major industries. • Dow Jones had risen over the course of 1928 and 1929, by September 3 rd 1929 it had reached an all time high of 381. • After the peak in September stock prices began to fall. • When it closed on Wednesday October 23 rd it had dropped 21 points in an hour. • The following Thursday investors became nervous because of the drop and began to sell.
Black Tuesday • To stop the panic a group of bankers pooled their money to buy stock. This helped stabilize prices, but only for a few days. • By Monday October 28 th prices were falling again. • On October 29, 1929 which is known as Black Tuesday a record 16. 4 million shares were sold (the average was between 4 and 8 million per day). • The collapse of the stock market would become known as the ‘Great Crash’. • The crash would lead to losses of up to $30 billion. • The Great Crash was part of the nation’s Business Cycle A span in which the economy grows, then contracts.
Ripple Effect of the Crash • Initially the crash only effected those who were heavily invested in the stock market. • However, within a short time millions of people who had never owned a share of stock were affected. • Thousands of banks were forced to close because they could not return depositors money. • The following things explain how the crash affected many Americans • • Risky Loans Hurt Banks Consumer Borrowing Bank Runs Bank Failures Savings Wiped Out Cuts in Production Rise in Unemployment Further Cuts in Production
Economic Contraction • Contraction is an economic decline market by a falling output of goods and services. • A particularly long and severe contraction is called a depression. • The Great Crash triggered even more serious consequences, and would lead to the Great Depression. • Great Depression - Severe economic decline from 1929 to about 1939. • With no money and little incentive to produce goods many factories closed throughout the country. • This left millions of workers unemployed. • After factories would close, small businesses in the area would fail, people could not afford to go to restaurants or other places. • By 1932, 12 million people were unemployed.
Impact on the World • Once the U. S. economy began to fail, the global economic system would follow suit a lead to a worldwide depression. • An example of this was in Europe. After WWI the U. S. had asked Britain and France to repay the debt they owed. • Due to high tariffs in the U. S. , European countries were unable to sell goods in the U. S. • To gain money Britain and France were relying on the reparations from Germany to help pay off their debts. • American companies had been invested in Germany, which helped pay for their reparations. • Once the depression hit, investments fell off. German banks began to fail, and reparations stopped. • Britain and France were unable to pay off the debt because they were not receiving money for reparations.
Underlying Causes of the Depression • The economy lacked a firm base, the wealth of the nation was unevenly spread out and limited to a few families. • Industry was producing more goods than consumers wanted, and many workers had not been as prosperous in the economic boom. • During the 1920’s speculators bought stocks with borrowed money. Then used those stocks as collateral to buy more stocks. • The stock market boom was based on borrowed money and optimism rather than real value. • The Federal Reserve also lowered interest rates to help economic growth, and then lowered the money supply to discourage lending. This resulted in too little money after the crash to allow the economy to recover. • Ultimately an unstable economy would lead to the Great Depression.
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