Causes of The Great Depression 18.1

Review What were some of the downsides to the 1920s? 1920s had been a time of prosperity How so? What were some of the downsides to the 1920s? Leisure time, cars, movies, sports, radio, planes Unequal rights, buying on credit-buy now, pay later

Election of 1928 Who is portrayed in this cartoon? Based on the caption, what can we tell about this person? Coolidge decided not to run for reelection

1928 election Republicans nominated Herbert Hoover Well-known to Americans Had been Coolidge's Secretary of Commerce

1928 election Democrats nominated Alfred E. Smith He was a 4 time governor of NY The first Roman Catholic to win a major party’s nomination for president

Smith’s beliefs became a campaign issue… Protestants claimed the Catholic Church financed the Democrats Believed they would rule the US if Smith were elected

1928 election Smith’s biggest challenge: The prosperity of the 1920s Republicans took full credit for this

1928 election results Who won? Notice Smith didn’t even win home state of NY Hoover was from Iowa Who won?

Herbert hoover

The stock market soars Bull market= stock market experiences a long period of rising stock prices Caused many people to invest in stocks Began buying stocks on margin (making a small cash down payment) Ie: Stock cost $10,000…down payment of 10%=$1,000 Where does the other $9,000 come from? As a loan from a stockbroker Have to pay stockbroker back eventually once you make some profit…so this is good if the stock prices keep rising, but what happens if they don’t?

To protect the loan, a stockbroker could issue a margin call, demanding the investor repay the loan at once Buyers/investors began to engage in speculation, they bet the market would climb, allowing them to make money quickly Investors were sensitive to any fall in stock prices. If prices fell, they had to sell quickly, or they wouldn’t be able to repay their loans

The great crash Bull market could only last as long as investors kept putting money into it By 1929, professional investors sensed danger There weren’t any new customers Prices slipped as they began to sell their holdings Other investors sold shares to pay interest on their loans Prices continues to fall

The stock market crash Black Tuesday- October 29, 1929 Stock prices took the steepest dive yet Almost 16 million shares of stock were sold Stock market lost between $10-15 billion in value By mid-November, nearly $30 billion was lost NOT the major cause of the Great Depression Did undermine the economy’s ability to overcome other weaknesses

Black tuesday

Banks begin to close Banks were forced to cut back on the loans they made By 1929, they had invested depositors’ money in the market, hoping to get a higher return there than they could by using the money for loans Consumers and businesses couldn’t borrow money This led to a recession- slow down in economic activity

Many banks were forced to close Customers lost their savings because the government did not insure bank deposits Bank run= many depositors withdraw their money at one time out of fear that the bank will collapse More than 10% of banks had closed by 1932

Bank failures

Roots of the great depression: uneven distribution of income The top 5% of American households earned 30% of the nation’s income 2/3 of families earned less than $2,500 a year Not everyone making consumer goods in factories could afford them

Roots of the great depression Many Americans had purchased items like refrigerators and cars on the installment plan Paying off such debts forced buyers to stop making new purchases Decrease in sales employees being laid off Chain reaction that put many people out of work Ie: radio sales decreased…makers cut back on order for copper wire, wood cabinets, glass Copper miners, carpenters, glass workers lost their jobs Small down payment, then pay off rest in monthly installments

Roots of the depression: loss of export sales Many jobs might have been saved if manufacturers sold goods abroad Hawley-Smoot Tariff- raised the average tariff rate to the highest level in American history Protected American farmers

Roots of the great depression: mistakes by the federal reserve Federal Reserve Board failed to raise interest rates By keeping rates low, companies kept borrowing money and expanding more than necessary Led to overproduction when sales were falling Companies had to lay off workers to cut costs