Causes of the Great Depression 11/28 – 11/29

Warmup What was the nickname for the decade of the 1920s? The Roaring Twenties

Post-War Economic Boom During WWI, the US had an economic boom Following WWI, the economy dipped slightly, but then went back up US emerged from the war as a world power Factories (assembly lines) producing 72% more goods per worker than pre-war levels More for sale meant lower prices Workers earned a lot more too (average 43% increase in wages)

What Do We Do With All That Money? Advertising triggered a “need” for new industries: Radios, refrigerators, cars, hygiene products, clothes, etc. ¾ of all cars in the world were owned by Americans Credit emerged as acceptable purchasing tool Americans began to invest in the stock market

Europe is Broke US forced European nations to repay war loans US could have forgiven loans Europe devastated by war, and could not rebuild economy to repay US lent Europe money to rebuild Europe just went further into debt With Europe essentially broke, it couldn’t repay the US and it couldn’t buy American goods (uh-oh!)

Republican Economic Policies President Calvin Coolidge: “The business of America is business” Coolidge put into place pro-business policies Lowered taxes on the wealthy Lax enforcement of anti-trust laws and regulations High protective tariffs

Real Estate and Stock Speculation Speculation: where a person makes a risky investment in the hope of making a quick profit California and Florida became hotspots for real estate speculators People used the stock market to make some quick money People believed the value in the stock market would never go down

Over Production Farmers and factories increased production during the ‘20s People believed the boom times of the 1920s would never come to an end But, Miss Caspers, you told us that the more you have of something, the less it’s worth Yes, which means that prices on goods went down Even though businesses were making more goods, they were making less money

Toll on Farming Industry Farmers had borrowed from banks to buy new equipment When farmers failed to sell surplus crops, they were unable to repay their loans Banks took over farms At the same time, a drought hit the central US Winds picked up dirt and the central US became known as the Dust Bowl Farmers left Oklahoma for California

Unequal Distribution of Wealth Statistically, the ‘20s was a time of wealth for all Wealthiest Americans saw their wages rise 75% Poorest Americans saw their wages only rise 9% Many Americans took to buying on credit which took them deeper into debt After the Crash, people could not even afford the basic staples of life

The Market Crashes In 1929, investors started selling stock while the value was still high This triggered a massive sell-off, which caused prices to drop “Black Tuesday” (10-29-29): the market crashed, losing 16 billion dollars

Banks Collapse In the ‘20s, banks had no regulation (deposits were uninsured) Banks used money to speculate on the stock market When the market crashed, banks lost billions When people went to bank to withdraw money, there wasn’t any Since banks had no assets, no cash reserves, and no new money coming in, they closed down Almost 6,000 banks closed by 1932

The Great Depression Begins The country had been in economic recessions before This recession is known as the Great Depression because: The amount of time it lasted (almost 11 years) The number of businesses and people it affected