Ch. 11 The Great Depression. 11.1 Causes of the Great Depression.
The Great Depression
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Transcript of The Great Depression
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The Great Depression
How was a decade of prosperity followed by a decade of hopelessness?
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The 1920s: “The Good ole’ Days”
1920s
• jobs were plentiful
• home ownership had doubled
1930s
• Over ¼ unemployed– unemployment rate never
dropped below 14 percent until 1941
• 1/4th of work force worked shorter hours reducing their incomes
• Families were losing their homes, and many starving.
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“a permanent plateau of peace and prosperity.”
1920s
• most home-owning families enjoyed amenities
• 60% of all households had automobiles
• More teenagers were attending high school; fewer were working full time.
1930s
• Many families were going hungry.
• 26% owned cars in 1920
• Children were riding around in freight cars, looking for work
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The Great Depression
Causes of the Great Depression
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1. Unequal distribution of wealth
• 2% of people owned 60% of wealth• 50% of families lived below poverty level
– Under $1500/yr• Unequal balance between production &
distribution
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2. Unequal distribution of corporate power
• Government Policies benefited corporations and those who were wealthy
• Abandoned anti-trust acts• 200 companies owned 50 % of nation’s
wealth
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3. Poor Banking Structure
• Small, local banks owned by larger city ban
• Not backed up or regulated by government
• Lent out more than they took inhttp://www.youtube.com/watch?v=qu2uJWSZkck
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4. High Tariffs and War Debts
• European countries couldn’t pay WWI debt b/c hit by depression
• Hawley-Smoot Tariff: placed a high tax on imports– countries retaliate and halt international
trade
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5. Overproduction in Industry & Agriculture
• Purchase new machines with credit to increase production
– Plan: pay off debt with “increased” income from “increased” sales
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6. Buying on Credit• Americans bought most durable
goods(refrigerators, washing machines, radios, cars…) on the installment plan: some money down at first, followed by a year of monthly payments + interest– By the end of 1920s American consumers bought
the following on installment plans:
* 60 to 75 percent of cars* 80 to 90 percent of furniture
* 75 percent of washing machines
* 65 percent of vacuum cleaners
* 18 to 25 percent of jewelry
* 75 percent of radios
* 80 percent of phonographs
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7. Playing the stock market• People hoped to make a quick buck
by purchasing shares of businesses, also known as ______.
– part ownership of a company so that when the company prospers so do you!
– But…..if the business declines….you lose $$$$
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Problems with playing the stock market
STOCK SPECULATION – risky move to buy stocks at low price then sell at a high price
BUYING ON MARGIN: paying 10-50% of the stock and borrowing the rest from a broker
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Example of Buying on MarginThe Good
• EXAMPLE– 1 share is $110 and
you pay $10 – You owe stockbroker
$100 with 10% interest per month
– 2 months later the stock doubled ($200)….you sold it
– You owe stock broker $120 but make $70 (80-10)
The Bad
• EXAMPLE– 1 share is $110 and
you pay $10 – You owe stockbroker
$100 with 10% interest per month
– 10 months the stock didn’t move and the broker wants his money…you sell the stock for $100
– You owe stock broker $90 + $100 =$190……YOU LOSE
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Buying on margin
• High interest rates
• Demand payment anytime
• If stocks fall then don’t have money to pay back
• Stocks go up• Borrowers sell at
high price• Pay off…
– Loan– Interest+ make extra $$$
The goodThe bad
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Short term trends that led to the Great Depression
1. WEDNESDAY, October 23rd – Dow Jones dropped 21pts in an hour before it closed– Dow Jones Industrial Average = an average of stock prices
of major industries
2. BLACK THURSDAY October 24th –investors began to sell and stock prices fell. JP Morgan & banks tried to stabilize market
3. BLACK TUESDAY/THE GREAT CRASH October 29th , 1929 – FEAR led to selling stocks 16.4 million shares sold investors lost over 30 billion dollars
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Short term trends that led to the Great Depression
The Ripple Effect Caused by the Crash4. Bank Failures – People are unable to pay loans to banks- More banks close- Fear leads to bank runs (people rushed to the
banks to withdraw)
5. Savings wiped out – By 1933 nine million savings accounts vanished
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Short term trends that led to the Great Depression
The Ripple Effect Caused by the Crash6. Cuts in production – Businesses have no money to produce.
Lack incentive due to lack of demand.
7. Businesses shut down- By 1933 100,000 business closed down
8. Rise in unemployment – As businesses cut back on production, workers are laid off. - went from 1.6million(3%) to 15million(25%)