What caused the Great Depression?. Important to remember: There is no agreed to cause of the Great Depression. Depending on your POV:  Conservatives.

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Presentation transcript:

What caused the Great Depression?

Important to remember: There is no agreed to cause of the Great Depression. Depending on your POV:  Conservatives blame monetary policies (controlling the supply of money with interest rates) – the FEDs deflationary actions.  Liberals blame fiscal policies (taxing & spending) – Federal Govt didn’t spend enough.

Long Term Factors Uneven Distribution of Wealth: Wages were not keeping pace with the cost of living, forcing many to use credit. Excessive Use of Credit: Spurred on by the boom of the 1920s and aggressive marketing, Americans were using credit to excess. Consumer Good% Purchased on Credit Autos60-75 Furniture80-90 Washing Machines75 Radios75 Phonographs80 As a TBL group, decide what is the biggest potential pitfall to an economy based on this type of consumer spending.

Long Term Factors Overproduction of Consumer Goods: Industrial growth – largely built on credit – was producing a volume of goods that workers with stagnant wages could not continue to sustain. Weak Farm Sector: Overproduction, high debt, and low prices since WWI. (Drought on the parts of the Plains.) High Tariffs Global Economic Problems

The Stock Market

What caused the “Bull” Market in the late 1920s? Post WWI transition from private to public financing, made more attractive by lower taxes during the 1920s. Margin Trading (High risk, short term loans to buy stock) Stock fad = volatility of short-term investments Stock Manipulation by insiders.

Triggering the Crash New car sales & construction starts were down. (U.S. was between waves of innovation.) Major Euro bankruptcy Smart investors were cashing in FED raised interest rates Not enough new investors to sustain the bull market Automobiles & Construction Stock Market Crash 1929 Aviation, Petrochemicals, plastics, electronics

1929 Stock Market Crash Timeline Sep. 3 Dow high at 381 Sep. 6 “Babson Forcast” causes many to “get out while the gettin’ was good.” Sep. 20 collapse of Clarence Hatry’s empire in Britain Oct. 23 J.P. Morgan buys to stop price decline Oct. 24 panic selling began Oct. 29 “Black Tuesday” *July 8, 1932 Dow low was 41.22