The Great Depression

Causes of the Great Depression Overspeculation on stocks using borrowed money that could not be repaid when the stock market crashed and stock prices collapsed

The Federal Reserve’s failure to prevent widespread collapse of the nation’s banking system in the late 1920s and early 1930s. The supply of money in circulation dried up.

High protective tariffs produce retaliatory tariffs in other countries, strangling world trade.

The Crash Black Thursday, October 24, 1929 – stock prices began to drop Black Tuesday, October 29, 1929 – stock prices hit bottom.

Conditions Leading to Depression

Unequal distribution of incomes The top 5% of Americans earned over 25% of the income The bottom 40% received only 12% of the income Therefore, many people had to borrow, credit was easy, many deep in debt

Overproduction Easy credit encouraged businesses to expand Led to huge increase in production of automobiles, appliances, textiles, etc. By Summer of 1929 manufacturers had huge stocks of unsold goods and began cutting back on production

Agriculture Farm prices had fallen after World War I and hadn’t recovered Many farmers had borrowed heavily to keep their farms that they were bankrupt

Global Effects European economies were weakened by the war and massive debts They used their money to pay debts instead of buying American products – little demand for US goods abroad. Protective tariffs limited international commerce

Federal Reserve System The Federal Reserve failed to prevent the collapse of the banking system The Fed did not increase the money supply in the early 1930s Banks could have lent money to businesses, allowing the economy to bounce back

How We Got There As the Dow-Jones industrial average continued to rise, more people gambled in the stock market. People bought stock on margin – only needed 25% of the value at purchase. Idea was to wait for increase prices to sell and take the profit.

In October, people began to sell off their stocks to take profits. Prices fell; people started to panic By Tuesday, October 29, the prices reached a point of no recovery Investors could not pay their stock debts

Unemployment and homelessness Homeless men, women and children built Hoovervilles – makeshift homes created from boxes and crates – in city parks Breadlines and soup kitchens Low, low wages for work that was available

Farmers Drought caused the soil to dry out Created the Dustbowl Banks foreclosed on farms Families from the Mid-west headed west to California for low-paying jobs as migrant farm workers