A Global Depression

The United States was supporting the rest of the world. If the U.S. fails, what happens to the rest of the world? The Great Depression

A Flawed U.S. Economy Three weaknesses: 1.Uneven distribution of wealth. The rise of productivity created new wealth, but only the richest 5% received 33% of all personal income. 60% of all American families earned less than $2,000 a year (Too poor to buy goods.) Store owners cut back orders. Workers are laid off.

2.Overproduction by business and agriculture. Technology had increased crop yields. Competition with other nations created an even greater surplus of food. This surplus drove prices and profits down. A Flawed U.S. Economy (cont’d)

3.People do not want as many consumer goods - demand is less. No profit, no way to pay off loans. Unpaid debts weakened banks and forced some to close. A Flawed U.S. Economy (cont’d)

On October 29, 1929, the Stock Market Crashed. People could not pay off the loan they owed. Stocks were now worthless. Unemployment increases. Prices and wages declined. People had lost all of their savings. People, especially farmers, lost their lands. The Great Depression - affected every aspect of the American economy. By 1933, 1/4 of all American workers had lost their jobs. Great Depression

A Global Depression All other nations relied on the U.S., and now the U.S. had collapsed. U.S. banks demanded repayment of overseas loans. American investors withdrew their money from Europe. Congress places high tariffs on imported goods - thought it would protect American goods European nations placed high tariffs on the U.S. (made conditions worse).

WWI Effects on the International Economy ($$$$) The United States and Japan were strong economically at the end of the war. –The US came in late and Japan played a small role in the war. Europe was weak economically. –Total War drained all resources. Balance of Power has changed. –Different countries (U.S. & Japan) have power. –Europe has lost some its power around the world.

The Balance of Power After WWI US & Japan are stronger Europe is Weak – resources drained

The Trail of Money after the Treaty of Versailles Germany must pay $33 billion in reparations. To pay reparations, they must get loans. They borrow from American banks. Germany takes this money and pays reparations mainly to Britain and France. The U.S. gets money from Britain & France for war loans.

Directions: Draw the “Circular Flow of Money!” United States Banks German government Britain & France Loans for reparations Paying reparations $33 Billion Paying back war loans

It is o.k. until Germany must pay back their loans. Germany defaults (does not pay) back their loans. No more loans = no more reparations No more reparations = no more war loans paid back. U.S., Britain, France, and Germany all are in financial trouble! Circular Flow of Money

The World is Affected (Europe) War debt nations, such as Germany and Austria, were hit the hardest. Austria's largest bank failed. A panic set in Europe.

The World is Affected (Asia) The Japanese economy, which relied on rice production, was also hit very hard. Crop failures led to famine (starvation) Value of exports fell - workers lost their jobs. –3 million workers lost their jobs.

The World is Affected (Latin America) These nations relied heavily on cash crops - crops grown for profit. World prices and market demand had already been dropping before 1929 now it had collapsed completely. Imported goods rose because of high tariffs. Could not repay its loans to the rest of the world.