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  1. 1. Rajesh Mudaliyar & Rahul Chaudhary The Great Depression 1929 SMBA: 7
  2. 2. What makes a Depression Great?  Recession: When your neighbor loses his or her job.  Depression: When you lose your job.
  3. 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. 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. 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. 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. 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. 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. 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. 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. 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
  12. 12. 1929-1932 Indicators United States Great Britain France Germany Industrial production –46% –23% –24% –41% Wholesale prices –32% –33% –34% –29% Foreign trade –70% –60% –54% –61% Unemployment +607% +129% +214% +232%
  13. 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. 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. 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. 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. 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. 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. 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. 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.
  21. 21. East Asia France
  22. 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. 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. 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. 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?
  26. 26. Does History repeat….? Thank You