Bellringer

Causes of the Great Depression

Causes of the Great Depression Farmers’ crisis/ Over production (surplus of goods, falling prices) Credit purchasing Tariffs (stopped foreign goods from coming into the U.S., but also slowed down foreign trade) Lower Wages Under consumption (b/c people were in debt) Credit buying- too much access to easy money

Were the 1920s really “roaring?” Buying on Credit (Margin) People wanted to live the “good life,” which meant indulging themselves with the hottest commodities (i.e. the automobile) In order to afford these items, people bought them on margin- pay a little now, and pay the rest back later with a low interest rate Effect: People had a FALSE sense of prosperity

Stock Market Speculation Stocks give the owner the ability to share in the profits, if a company does well, or suffer losses if a company does poorly During the 1920s, the stock market was described as a bull market- in which prices steadily rose (so if you invested, you were sure you were going to make $$)

Were the 1920s really “roaring?” Overspeculation of stock market The stock market seemed like such an easy way to make money That is when OVER speculation occurred, everyone bought stocks at low prices, even if they could not afford the low prices Stock prices did NOT reflect the true success of the business You could take out a loan to buy stock (MARGIN!) People who bought stocks on margin risked loosing a lot of money (that they didn’t have) if the prices of stocks went down

Underconsumption Few consumers had the money to purchase goods Underconsumption led to lower prices which resulted in the loss of money for farmers and manufacturers

Overproduction Farmers Overproduce: -The wide spread switch from horse-drawn to mechanized farm equipment allowed farmers to increase their production of crops -Overproduction led to major price reductions, causing farmers to lose money and the inability to pay back farm loans

The Stock Market Crash October 24th- Black Thursday, when stock prices plunged and people panicked and pulled out their investments (sold their shares) Oct. 29th- Black Tuesday- when the “bottom fell out of the market”- prices dropped to an all time low As the prices dropped, people panicked and continued to sell, causing the prices to drop even further People who bought stock on margin could not pay back the investors

Stock Market Crash Banks who had loaned all of the money to buy on margin could not get their money back Resulted in bank failures While the crash of the stock market was NOT the only cause of the Great Depression, it was a major blow to the economy, and it made it impossible for the American and world economy to revive itself