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Causes of the Great Depression

Causes of the Great Depression. Unequal Distribution of Wealth, High Tariffs Overproduction in Industry and Agriculture, Farm Crisis, War Debts, Stock Market Crash. Though historians disagree over the exact cause, most identify a few main sources of the problem.

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Causes of the Great Depression

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  1. Causes of the Great Depression Unequal Distribution of Wealth, High Tariffs Overproduction in Industry and Agriculture, Farm Crisis, War Debts, Stock Market Crash

  2. Though historians disagree over the exact cause, most identify a few main sources of the problem

  3. Installment buying, using credit and paying back in small amounts allowed people to buy cars and new products they didn’t have the money to pay for up front

  4. Buy Now! Pay Later!

  5. Rural Poverty in the 1920s • Although the nation’s wealth grew by the billions, it wasn’t evenly distributed • The products available to many in the urban areas were still considered luxuries for those in rural areas—most of whom still did not have electricity • The top 1% had a 75% increase in their disposable income while the other 99% saw about 9% increase • Most Americans had no savings

  6. Taxable Income Increases

  7. War Debts • At the end of World War I, European nations owed the United States $10B • They had no way of paying it back because of their devastated economies • Coolidge wanted the debts paid—this forced the Allies to demand payments from Germany • Europe could then not purchase American goods—this did not help the U.S. economy

  8. High Tariffs • In 1922, the U.S. passed Fordney-McCumber Act which put high tariffs in place on industrial products (this action forced Americans to buy local products—which doesn’t help foreign economies that are trying to recover from the war) • Other countries retaliated by taxing American goods heavily and world trade declined • The decline in world trade contributed to the global depression

  9. Overproduction in Industry • Factories were turning out lots of products—wages weren’t rising enough for workers to buy them • The surplus products couldn’t be sold overseas because of the high tariffs and lack of money in Europe

  10. Farm Overproduction • Farm incomes dropped in the 1920s because of surpluses • Price of farm land fell from $69/acre in 1920 to $31 in 1930 • In 1929 average annual income for an American family was $750 but was only $273 for farm families • 30% of Americans still lived on farms

  11. Decline in farm products Per cwt= per 100 pounds

  12. Election of 1928

  13. Hoover Wins • Al Smith was Catholic and many did not trust him, Hoover was very popular for having fed starving Europeans following World War I and for his work as Secretary of Commerce • “We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing among us.” 1928

  14. Hands Off • President Hoover was himself a self-made man • “I do not believe that the power and duty of the General Government ought to be extended to the relief of individual…though the people support the Government the Government should not support the people.” 1930

  15. Farm Crisis • Farmers who had been suffering during the 1920s suffered further declines during the Great Depression as wholesale food prices collapsed. • Farmers then had little or no money to purchase equipment to maintain their farms and many could not pay their mortgages and lost their farms

  16. Foreclosures • A foreclosure happens when an owner cannot pay for their mortgage and the bank repossesses the property to sell it

  17. Speculation • Speculating is buying stocks out of a desire to get rich quickly rather than investing because of a sound investment • What’s wrong with this kind of investment?

  18. The Crash on Black Thursday • Many people date the beginning of the Depression at October 24, 1929, Black Thursday, the day the stock market crashed. • This was traumatic for those who owned stock as sales volume broke all records. But the decline in overall stock prices was only about 2.5%measured by the New York Times index of 50 stocks. • Most of the decline still laid in the future; the market hit bottom on July 7 of 1932 when the Times index was only 33.98, a decline of over 89% from its high of 311.90 of September 19, 1929.

  19. Reasons for the crash • Stocks were overpriced due to speculation—meaning they weren’t worth their sale price • There was also lots of fraud and illegal activity due to a lack of regulations and rules of trading • Many had made their purchases with borrowed money. Bad idea.

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