Transcript Document

Causes of the Great Depression
Agricultural Recession:
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Farmers ¼ of workforce
Oversupply  falling prices
Debt  Bank foreclosures
Buying on Margin:
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Bought stocks with borrowed $
No collateral
Still happens today
“On Margin”
Laissez Faire Government Policy
• No Regulation of Stock Market
• Bribery, pyramid schemes, Artificial inflation
of stock prices
Overspeculation in Stocks
• What is a stock?
• “Speculation” (middle class Americans too)
– Gambling based on “confidence”
• Led to Stock “Bubble”
• Prices not based in reality
Black Tuesday (1929)
• Loss of “Confidence” (what is it?)
• Panic leads to Crash
• Companies close; Americans lose life savings
• Only a few lucky people win
Uneven Distribution of Wealth:
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Wages didn’t keep pace with production
Too few consumers to fuel the economy
Excessive buying on credit
Conservative counter-argument
Overproduction by Factories:
• Prices drop due to oversupply
• Businesses cut back / layoffs
Business Cycle
Monetary Policy Limits Money Supply:
• Federal Reserve limits money in circulation to slow stock
speculation
• Current example: Fed and other central banks increase
money supply to ease debt crisis
Business Cycle Contraction:
• Cycle of Expansion & Contraction
• Businesses Close Unemployment Rises
• Crisis of Confidence  Bank Crisis
– Banks couldn’t give back $ to all customers at
once
– Example
– Today we FDIC helps to prevent this
• Dust Bowl (1930s)
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In Midwest & Great Plains & other states
Drought + overfarming + poor irrigation
Foreclosure of 1000s of farms
Former farmers become migrant workers
(“Okies”)
• European Economies
– Never recovered from WWI
• Hawley-Smoot Tariff (June 1930)
– Example
– Tariffs increased 25% to block foreign imports
– Results in tariff war; international trade
devastated
• US Loans to Europe End
– Germany stops paying Reparations
– Britain and France stop Paying Debts
• = Worldwide Depression
Joblessness
1927- 1.6 Million
1933- 13 Million – 25% of the population
Foreclosures- 5% of all farms
Suicide Rate increased 30%
Reasons for the Crash Recap
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Buying stocks on __________
Stock values (increased or decreased)
In reality, the economy was (growing or decreasing)
Stocks became _________ when no one wanted them
The Market _____________ on Oct. 29th
People run to the _______to protect their
____________
• Banks run out of funds because of too many _______
• People are now ____________, ______________,
_________, etc…
Reasons for the Crash Recap
• Buying stocks ‘On Margin’
• Stock values inflate/ increase
• In reality, the economy was decreasing (autos,
textiles)
• Stocks become worthless when no one wants them
• Market crashes
• People go to banks to protect their savings
• Banks run out of funds because of too many loans
• People left in ruin, without savings, worthless stocks,
unemployed, homeless…