Causes of the Great Depression

False Sense of Security Farming suffered Gross National Product (GNP) increased by 30% (in 1920s) because rapid growth > optimism Unemployment low (~3%) because companies had to keep up with demand

Stock Market Place where stocks are bought & sold Stock: ownership in company > sold in shares So buying shares of stock = buying a piece of the corporation In the 1920s, overall value of stocks quadrupled More ordinary Americans began investing in stocks Why is this important?

Business & Gov’t Prosperity of 1920s reflected success of Presidents Harding & Coolidge’s pro-big business policies “The chief business of the American people is business.” Coolidge Term for no gov’t intervention in business or “hands off” is…

Election of 1928 Candidate Herbert Hoover Al Smith Party Republican Democrat Characteristics Quiet, shy, business-like Outgoing, natural politician Religion Quaker Catholic = 1st time Stance on prohibition Supports prohibition Supports alcohol sales

Economic Factors of Depression Poor Distribution of wealth Wealthiest 1% income grew 60% while rest only 8%) 1929, 70% of families income below standard of living Credit Buy on margin (pay in installments) Investors used credit to purchase stocks > risky

Credit Example If I want to buy 100 shares of Company A at $10 per share, it would cost $1000. If I pay $500 and borrow $500 from a stockbroker, I plan to pay off the stockbroker when I sell the stock. What happens if the value of the stock increases? What happens if the value of the stock decreases? Like the housing market a few years ago.

Economic Factors cont. Federal Reserve Credit dried up > Created in 1913 under Pres. Wilson (bank for gov’t) Nation’s central bank made it harder to get loans after concern with stocks & buying on margin > Credit dried up > Consumer spending decreased > Industries struggled

What is the irony of this advertisement? What do you notice about this picture? What impact do you think that had on society?

Video clip: Question to consider https://www.youtube.com/watch?v=m5rUXuaYUe0 (causes of the Great Depression) Question to consider Discuss the vulnerabilities in the 1920s economy

Financial Factors of Depression Stock market heavily used in mid-1920s Speculation in stocks increased Margin buying encouraged by Federal Reserve policies Stock prices > unrealistic levels Stock market crash Black Tuesday (Oct. 29, 1929)

http://www.history.com/topics/1929-stock-market-crash Explain the impact of the 1929 Stock Market Crash

Effects of the Crash On individuals Almost all suffered; lost savings; > debt On banks Depositors withdrew $; lost $ from stocks & loans; 1933 – 5,000 banks closed On businesses Blow to struggling businesses because banks cut off & consumers cut back; 1930 Americans saw wages drop by $4 billion; 3 million Americans lost jobs

Overseas Effects Depression spread throughout Europe Still recovering from WWI American banks called in loans Foreign businesses laid off workers Gov’t (including U.S.) passed high tariffs to protect industries Ex. Smoot-Hawley Tariff

Short Answer Response Of the causes of the Great Depression discussed above, which ONE do you think was most significant and WHY?