CAUSES of the

GREAT

DEPRESSION1929-1930s

Tuesday, October 29,1929

• Black Tuesday—stock market plunges

• Stocks lost their value because all at once, many people wanted to sell

shares and very few buying

• America slid into the longest economic slump it has ever experienced.

THE GREAT DEPRESSION

Definition

1. The condition of feeling sad or despondent.

2. An area that is sunk below its surroundings.

3. A period of drastic decline in a national or international

economy, characterized by decreasing business activity, falling

prices, and unemployment.

Depression

Factors that caused the Great Depression

• SHAKY STOCK MARKET

• BANK FAILURES

• OVERPRODUCTION

• BUYING ON CREDIT

• SPECULATION in stock market

• HIGH TARIFFS

Speculative Boom leads to Spectacular Crash

• Bull market—steady rise in stock market prices over long period of time

• People swept up in wave of speculation

• Buying with hopes of selling later for a way higher profit

• NO LIMIT?!!!—optimism

BUYING ON MARGIN

• Borrowing money was easy in the 1920s

• People only needed to make down payment on stocks (10%/borrowed 90%)

• Stock market was rising, brokers happy to lend out money!!

• Easy borrowing encouraged RISKY INVESTMENTS

Bull Market

• High-flying market without a solid foundation throughout the 1920s…

BEAR MARKET

• Prices steadily declined in stock market

• Market turned-down…

• Prices dropped, creditors who loaned wanted money back

• Most investors could not make enough to sell stocks to repay because of dropping prices

• Many sold homes, cars, furniture to pay their debts

• Many businesses invested their profits in stock market

• Investors lost more than 30 billion exceeded amount spent on WWI

• Investors rushed to sell stocks pushing prices down more!!!!

BANKING CRISIS

• Banks caught the same stock market fever!!

• Usually lend for businesses, farmers, and homes

• Started lending to stockbrokers, who in turn lend to investors

• October 1929, stock market crash

• Investors could not repay

• Brokers could not pay banks

• Banks did not have money to distribute people’s money

BANK FAILURES

• Banks closed

• Wiped out people’s savings

• Depositors

• Lost confidence in banks

• BANK RUNS!!

• Lost confidence in banks and demanded all money

• Lined up around block

• When cash was out… banks closed

Too Much for Sale, Too Little to Spend

• Late 1920s demand for consumer goods could not

keep up with mass production

• Overproduction overwhelmed the country

• Too many goods, stock market crash, and bank crisis

caused economy to collapse

UNDERCONSUMPTION

• People were not buying as much as the economy was producing

• Had already bought a TON on CREDIT!

• The flip-side of overproduction

• FARMERS were first to experience

• Farmers like everyone else bought with INSTALLMENTS (credit)

• RESULT FOR WORKERS

• businesses closed, companies laid off workers

• Unemployment rates rose (from 3% to 25%)

• Inability to buy products contributed to falling economy… vicious spiral down

GOVERNMENT ACTIONS…make it worse.

• By 1931, economy was in shambles

• Under President Herbert Hoover (1929-1933), government action’s

made things worse

Tight Money Supply

• Many economists blame FEDERAL RESERVE SYSTEM ( Woodrow Wilson)

• Fed kept interest rates low allowing easy borrowing!!! (excessive borrowing)

• After Crash… terrible timing! Fed began increasing rates.. But economy had already slowed… people already stopped buying

• Hurts businesses even more!!

• Sends economy into hibernation

• Fed maybe should have allowed more money in circulation!!

TARIFFS

• WWI left Europe in shambles

• Allies were having trouble paying back US borrowed money

• Germany was even worse!!

• They needed to sell large amounts of goods to US

• HAWLEY-SMOOT TARIFF

• Protect American business by raising tariffs

• Trade WAR! (European countries also do the same)

• Hurts farmers and businesses because of overproduction

• STIFLED INTERNATIONAL TRADE

What made farmer’s go into debt in the 1920’s?

Overproduction & Low Crop Prices

Did the U.S. gov.’t raise or lower tariffs pushing the

country further into depression?

Raised Tariffs

Was credit hard or easy to acquire in the 1920’s?

Easy

What term describes buying stocks with credit using

only a down payment?

Buying on Margin

What happened on “Black Tuesday”?

The Stock Market Crashed

What day did the stock market crash?

October 29, 1929