False Sense of Prosperity

• Mood of America optimistic about future• Medical advances = life expectancy up 10

years• Infant mortality down• Standard of living was improving!

• Hoover is admired as president (self-made millionaire – food relief in WWI)

• Laissez-faire economics appeared to be working well

• Stock Market up, values up (1925 = $27 billion, in 1928 alone value rose $11 billion)

• From 1921-1929 GNP rose 6% per year (previous decade 1%) – total value of good and services a country produces annually

• National income rose from 58 billion in 1921 to 83 billion in 1929.

Herbert Hoover

Signs of Weakness in Economy• Big business is booming (number of millionaires

doubles in 20s) – small businesses are being wiped out

• Gap between rich an poor growing rapidly• Disparity between management & labor grew• 1929, 200 large companies held 49% of American

Industry• 1929, 24,000 families (0.1%) had incomes of

more than $100,000• Also held 34% of nations total savings

• 71% of families earned less than $2,500• 80% of all families had no savings• Tax cuts to the wealthiest were given (so not

to hinder further business expansion) but hurt small business

Personal Debt Rises

• Buying on Credit = easier to purchase things = debt soars = spending declines

• Personal debt 1920 = $48 billion• 1929 = $72 billion• People unable to manage credit, poor

investing, etc.• Heavy focus on the present and no concern

for the future will lead to depression in 30s.

Demand For “Backbone” Industries Down

• Textiles are losing out to foreign competition• Japan, China, India, Latin America• Coal mining is losing out to new energy

sources• Electricity expanding, hydro-power, natural

gas, fuel-oil

• Railroads losing to new forms of transportation

• Automobiles, trucks, buses

• Home Construction is down (25% between 1925-1929)

• Led to decrease in other businesses (raw materials, furnishings, appliances)

• Agriculture is struggling• During WWI, demand was high, drops 50%

after war• Farmers going into debt (lost market, huge

surplus)• Farms close, rural banks close (couldn’t

receive payments for wartime debts/loans)• 6,000 rural banks close during the 20s

Playing the Stock Market

• Speculation – high risk investments in hopes of huge returns, due to soaring stock values

• Buying on Margin – purchase a stock for just a fraction of its price (10 to 50%), borrow the rest

• Encourages less wealthy investors• Brokers then charged high interest rates and

could demand payment at any time

Market Crashes

• Loss of confidence = average investor sold fast = stock market prices fell fast

• October 29, 1929, Black Tuesday – the market falls out

• The Roaring 20s comes to a halting stop!