Causes of the Great Depression Chapter 9, Section 1

Election of 1928 Republican: Herbert Hoover Democrat: Alfred E. Smith 

Bull Market Bull Market: Long period of rising stock prices. Stock Market: System set up for buying and selling stocks.

Bull Market (cont.) Stock Market Problems: Speculation: Taking risky bets that the market would continue to rise Buying on Margin: Paying a small % of a stock’s price as a down payment and borrowing the rest (up to 75%). Margin Call: Broker demand that an investor immediately repay a loan.

The Great Crash October 29, 1929 “Black Tuesday” Stocks lost $10 - $15 Billion in value. Was NOT a major cause of the Great Depression but it hurt America’s ability to deal with other problems.

The Great Crash (cont.) Banks: Loaned money to stock investors. Invested depositors’ money hoping for higher return rates than normal loans. 1929: 659 banks closed 1933: 6,000 banks closed (25%)

Roots of the Great Depression Uneven Distribution of Wealth Half of all families earned less than $1,500 a year The richest 5% of Americans had 1/3 of the nation’s wealth. The poorest 40% of Americans had 1/10 of the nation’s wealth.

Roots of the Great Depression Loss of Export Sales Hawley-Smoot Tariff Act Loss of overseas markets when America’s were struggling.

Roots of the Great Depression Federal Reserve Should have raised interest rates to slow down risky investing (speculation). Instead: Kept interest rates low. Encouraged speculation Made businesses think the economy was still expanding = Took out more loans. When the Depression hits: They RAISED rates.

Financial Collapse Gross National Product (GNP) Fell 50% $104 billion down to $59 billion

Financial Collapse (cont.) Unemployment 1929: 1.6 million (3% of population) 1933: 13 million (25% of population)