Unit 6
The Causes of the Great Depression Chapter 18 Section 1
The Election of 1928 ◦ Republicans nominated Herbert Hoover for president who wins by a landslide ◦ “I have no fears for the future of our country. It is bright with hope”
The Stock Market Soars ◦ Bull Market – long period of rising stock prices ◦ Because of the bull market people began to invest ◦ Buying on a margin – putting only a small cash payment down ◦ Margin Call – demand that the investor repay the loan at once ◦ Speculation – bet the market would continue to climb, thus enabling them to sell the stock and make money quickly
The Stock Market Crash ◦ The Stock Market prices began dropping ◦ Black Thursday – Market plummeted further ◦ Black Tuesday (October 29, 1929) – Stock Market prices took the steepest dive ◦ The Stock Market Crash was not the single major cause of the Great Depression
Banks Began to Close ◦ Banks had loaned nearly $6 billion to stock speculators ◦ Banks invested depositors’ money in the stock market ◦ Banks did not insure people’s money in 1929 and 1930 ◦ Bank Run – takes place when many depositors decide to withdraw their money at one time
The Uneven Distribution of Wealth ◦ Overproduction due to machinery in factories ◦ Manufacturing out put per person per hour was 32% increase ◦ Worker’s wages only increased 8% ◦ During the 1920s people bought items on installment plans Pay in small amounts monthly ◦ People lost their jobs due to the chain reaction
The Loss of Export Sales ◦ Most of the world was also experiencing a recession so they were not interested in buying goods from the US ◦ Hawley-Smoot Tariff – Raised the average tariff rate to the highest level in American history Other countries raised their tariffs so fewer American products were sold overseas
Mistakes by the Federal Reserves ◦ Instead of raising interest rates to stop the speculation they kept the rates low By keeping interest rates low it enabled banks to make risky loans Low interest rates allowed people to think the economy was still going strong ◦ The Federal Reserves raised interest rates which tightened credit ◦ The Great Depression is HERE!!