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Causes of the Great Depression

Causes of the Great Depression. Agricultural Recession: Farmers ¼ of workforce Oversupply  falling prices Debt  Bank foreclosures Buying on Margin: Bought stocks with borrowed $ No collateral Still happens today. “On Margin”. Laissez Faire Government Policy

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Causes of the Great Depression

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  1. Causes of the Great Depression Agricultural Recession: Farmers ¼ of workforce Oversupply  falling prices Debt  Bank foreclosures Buying on Margin: Bought stocks with borrowed $ No collateral Still happens today “On Margin”

  2. Laissez Faire Government Policy • No Regulation of Stock Market • Bribery, pyramid schemes, Artificial inflation of stock prices Overspeculation in Stocks • What is a stock? • “Speculation” (middle class Americans too) • Gambling based on “confidence” • Led to Stock “Bubble” • Prices not based in reality Black Tuesday (1929) • Loss of “Confidence” (what is it?) • Panic leads to Crash • Companies close; Americans lose life savings • Only a few lucky people win

  3. Uneven Distribution of Wealth: • Wages didn’t keep pace with production • Too few consumers to fuel the economy • Excessive buying on credit • Conservative counter-argument Overproduction by Factories: • Prices drop due to oversupply • Businesses cut back / layoffs Monetary Policy Limits Money Supply: • Federal Reserve limits money in circulation to slow stock speculation • Current example: Fed and other central banks increase money supply to ease debt crisis Business Cycle Contraction: • Cycle of Expansion & Contraction Business Cycle

  4. Businesses Close Unemployment Rises • Crisis of Confidence  Bank Crisis • Banks couldn’t give back $ to all customers at once • Example • Today we FDIC helps to prevent this • Dust Bowl (1930s) • In Midwest & Great Plains & other states • Drought + overfarming + poor irrigation • Foreclosure of 1000s of farms • Former farmers become migrant workers (“Okies”)

  5. European Economies • Never recovered from WWI • Hawley-Smoot Tariff (June 1930) • Example • Tariffs increased 25% to block foreign imports • Results in tariff war; international trade devastated • US Loans to Europe End • Germany stops paying Reparations • Britain and France stop Paying Debts • = Worldwide Depression

  6. Joblessness 1927- 1.6 Million 1933- 13 Million – 25% of the population Foreclosures- 5% of all farms Suicide Rate increased 30%

  7. Reasons for the Crash Recap • Buying stocks on __________ • Stock values (increased or decreased) • In reality, the economy was (growing or decreasing) • Stocks became _________ when no one wanted them • The Market _____________ on Oct. 29th • People run to the _______to protect their ____________ • Banks run out of funds because of too many _______ • People are now ____________, ______________, _________, etc…

  8. Reasons for the Crash Recap • Buying stocks ‘On Margin’ • Stock values inflate/ increase • In reality, the economy was decreasing (autos, textiles) • Stocks become worthless when no one wants them • Market crashes • People go to banks to protect their savings • Banks run out of funds because of too many loans • People left in ruin, without savings, worthless stocks, unemployed, homeless…

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