The Great Depression

How do Banks Make Money?

Customers deposit money in a bank Banks invest that money by making loans Banks make money on the interest from loans

B. SPARK!!! Of the Depression Cause & Sparks of Depression B. SPARK!!! Of the Depression 1. Stock Market Crash, Black Thur. Oct. 29, 1929 a. Summer 1929, Investors began to sell stocks b. Supply & Demand Again – Massive Sell-Off and prices began to fall 2. Margin (Borrowing $$) - Buy stock by just paying a small portion of what the stock is worth (example: 100 shares at $10= $1000 only pay $300 still owe $700) -Problem, stock crashes and you loose your money and can’t payback stock broker - stock broker can’t pay back bank

People bought stocks on margin The Stock Market People bought stocks on margin a stock is $100 you could pay $10 now and the rest later when the stock rose Stocks Fell The person had less than $100 and no money to pay back

Then…. People panicked about their money Investors tried to sell their stocks This led to a huge decline in stock value Stocks were worthless People who bought on “margins” could not pay Investors were average people that were broke Then….

And…. Bank Failures

= + Banks Close Banks have no money to give people People Default on Loans People Loose savings

Causes of the Great Depression Stock Market Crash of 1929 – Stockholders lost over $40 billion dollars in 1st two months Bank Failures – Over 9,000 banks failed. Reduction in Purchasing Across the Board – Led to unemployment rate above 25% American Economic Policy with Europe – Smoot Hawley Tariff led to high taxes on imports

Causes of the Great Depression Rising debt led to restrictions on new loans, which led to scarce credit – Federal Reserve tightened the money supply Big banks had made huge loans to foreign countries - When money supply grew tight, foreign countries defaulted Drought Conditions – The “Dust Bowl” on the Great Plains led to farm failures Over Production – Farms & Factories produced a surplus of products