The Great Depression

Great Depression

Election of 1928Alfred E. Smith Herbert HooverDemocrat Republican Catholic ProtestantOpposed Prohibition Approved Prohibition

Republicans took all the credit for prosperity

“I have no fears for the future of our country, it is bright with hope.”

Herbert Hoover

Bull Market• Stock Market– System for buying and selling shares of companies

• Bull Market– Long period of rising stock prices– Led to more people joining the market

• Buying on margin– A small cash down payment• Ex. An investor could buy $10,000 for $1,000. The other

$9,000 would come as loan from the stockbroker. They would sign an agreement to pay the rest.• Think of investing in a person

– Only works if prices continue to rise

Bull Market

• Margin Call– Demanding the investor repay the loan at once• Protected the loan• Made investors very sensitive

• Speculation– Taking risks in the market• Hope of continued growth• Get rich quick

Can only continue if new investors keep putting new money into it

Causes of the Great Depression

• Black Tuesday– October 29th, 1929– Steepest dive ($10 -$15 billion)– Not the major cause, undermined economy's

ability to hold out against other weaknesses • Bank Failures– Banks lent to speculators– Invested deposited money– Bank runs– Uninsured banks

Causes of the Great Depression

• Uneven distribution of income– Top 5% of American households earned 30% of the

nations income– Overproduction• Wages could not keep up with production

– Installment plans• Lower consumption

– Less production (of ALL parts)» Layoffs

Chain reaction

Causes of the Great Depression• Trade Barriers– U.S. banks did not loan to foreign investors– Foreign companies purchased fewer products– Hawley-Smoot Tariff

• Raised the average tariff• Meant to protect but damaged sales companies• Foreign companies did not buy American products

• Federal Reserve kept its rates low– Encouraged risky loans– Led business to think market was expanding

• Led to MORE overproduction – After it hit, Fed raised interests rates, tightening credit

Industry Slowed, which caused:

Which helped contribute further to …

Automobile sales declined. This loss of demand meantless demand for:

Rubber, steel, oil, textiles

Low wages and Unemployment

Cyclical Effect

Cyclical Effect