1. Causes of the Great Depression

2. First a Review: The Stock Market Crash Not a Cause- but a Symptom of the Great Depression

3. The “Roaring” 20s 1920s saw a long bull market (stocks go up) Investors buy more on margin (borrowing money to buy stocks) Easy credit leads to speculation (buying stocks for quick gains, instead of investing in the future)

4. Stock Market Crash of 1929 October 29, 1929: Black Tuesday sees largest sell-off in history ($15 billion)

5. Stock Market Crash of 1929 Bank failures excite fear. People withdraw more money causing more failures 3,000 banks fail in first two years

6. Causes of the Great Depression 1. Overproduction/Low Demand 2. Uneven Distribution of Wealth 3. Reduced International Trade 4. Mistakes by the Federal Reserve

7. 2. Uneven Distribution of Wealth 1929: top 5% earned 30% of national income 2/3s of families earned less than $2,500 a year

8. 1. Overproduction/Underconsumption New Technology (farm machinery) = Overproduction (more crops than can be sold) Over supply of crops = lower farm prices

9. Farmers can’t repay loans or mortgages Banks foreclose on farms 1. Overproduction/Under consumption

10. Companies make more product, but not enough buyers=workers laid off=less money to buy. Buying on credit masks this slow down. 1. Overproduction/Underconsumption Why Can’t I Buy?

11. 2. Uneven Distribution of Wealth Increased production, tax cuts and stock speculation = increased gains for the wealthy Many Americans cannot afford to buy goods

12. 2. Uneven Distribution of Wealth Many Americans use installment plans to buy items they cannot afford (buying on credit). Increased debt = leads to decreased purchases

13. With low demand Companies lay off workers/consumers (lowering demand) 2. Uneven Distribution of Wealth

14. Demand Drops Buying slows Industry Slows Unemployment Lower Wages 2. Uneven Distribution of Wealth

15. 3. Reduced International Trade American banks stop lending to Europe Europeans stop buying American goods

16. 3. Reduced International Trade Hawley-Smoot Tariff (1930) raises tariffs to highest level in American history. Europe slows buy of American goods Europeans respond with higher tariffs on American goods.

17. 4. Mistakes by the Federal Reserve 1920s: the Fed keeps interest rates low = increased stock speculation/risky loans

18. 4. Mistakes by the Federal Reserve 1930s: the Fed raises interest rates, making loans harder to get when needed more

19. The Depression Sets In Hoover thinks it’s just a bump in the economic road. Hoover’s attempts fail to stem the falling economy. The Depression deepens in the early 30s Hoover looses the election of 1932 to Theodore Roosevelt (FDR) FDR ushers in the “New Deal” to fight the depression