1. The Stock Market Crash of 1929
and Causes of the Great Depression

2. First Things First…
The Stock Market Crash of 1929 is NOT the same thing as the Great Depression
“The Crash” was one of the causes of the Depression
But what caused “The Crash”?

3. Leading up to the “The Crash”
Business had been booming in the 1920s (another reason for the term “roaring”)
But investments during this time were being made with borrowed money i.e. most people didn’t actually have the money to cover their full investment

4. Buying on Margin-- Cause 1
“Buying on Margin” = you borrow some $$ for the stock you are purchasing from the stockbroker
In theory, you’ll pay the broker back when you make money off the stock
But what if the stock never makes money?
This is similar to OVERSPECULATION

5. Over-expansion of Credit– Cause 2
Credit was expanding like wild
Remember what credit is?
Money that is loaned to do something (like start a biz, buy a home)
But over expansion of credit can be bad
Why? What happens if credit dries up?

6. Business Failures– Cause 3
Businesses start failing for a variety of reasons
Businesses started declaring bankruptcies

7. Bank Deposits and Bank Failures – Cause 4
Banks starting to run out of money because…
Banks were using people’s money to invest
But then the investments failed
When the economy started to look bad, people rushed the banks to withdrawal their money, but guess what?
THE BANKS DIDN’T HAVE THE FUNDS!

8. “Bank Run”

9. Black Tuesday October 29, 1929– the day of “THE CRASH”
All the preceding events (on previous slides) lead to this crash
$16B of value lost! (About 50% of the stock market’s total value)
A “bad day” on Wall Street today is a 10% loss
In that one day, people lost the confidence (TRUST) to ever invest again, so…
The next day stocks did not rebound

11. Impact of Black Tuesday
People panicked
“Bank runs” but banks had no money to give
New investments grounded to a halt

12. Causes of the Great Depression
The Crash of 1929– Cause #1
Smoot-Hawley Tariff Act (1930)– Cause #2
Taxes passed in order to protect American companies
Taxes as high as 50% on imports
Europe matched us in retaliation
World trade dropped 40%

13. The FED’s Inaction– Cause #3
The Federal Reserve System (or FED) is the central banking system of the US. The President appoints members to the Board of Governors
The FED regulates monetary policy by doing things such as lowering or raising interest rates
The FED failed to act to prevent the collapse of many banks in the late 1920s
This lead to less and less money being circulated through out the nation’s economy = BAD