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Causes of the Great Depression. Agricultural Recession: Farmers ¼ of workforce Oversupply  falling prices Debt  Bank foreclosures Buying on Margin: Bought stocks with borrowed $ No collateral Still happens today. “On Margin”. Laissez Faire Government Policy

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causes of the great depression

Causes of the Great Depression

Agricultural Recession:

Farmers ¼ of workforce

Oversupply  falling prices

Debt  Bank foreclosures

Buying on Margin:

Bought stocks with borrowed $

No collateral

Still happens today

“On Margin”

slide2
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
slide3
Uneven Distribution of Wealth:
  • 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

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

Business Cycle

slide4
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)
    • In Midwest & Great Plains & other states
    • Drought + overfarming + poor irrigation
    • Foreclosure of 1000s of farms
    • Former farmers become migrant workers (“Okies”)
slide5
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

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
Reasons for the Crash Recap
  • 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 recap1
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…