The Great Depression

General Causes of the Great Depression  Global Depression  European World War I debts went unpaid  Consumer debt  Credit  Lack of government regulation  Stock market crash/ over-speculation/ margin buying  “ Less ” Income Spending Employment Cycle  Business failures  Unemployment

Good Good Times!  1920 ’ s  Public Perception:  Economy would continue to grow  No fear of unemployment  Low taxation

Credit  Faith in the stable economy  In having a job  In a growing economy  Made people feel safe borrowing  BUT  PEOPLE BORROWED TOO MUCH

Uh Oh …  Easy credit means loans to people who might not be qualified, or able, to pay loans back.  Little regulation by the government to make sure loans are only made to those who would be able to pay them back.

The Consumer  Used credit (borrowed money)  Did not have the money to pay it back  People wanted to buy things  Banks wanted to lend (make money on loans)  Government wanted credit to continue  Consumer spending = strong economy  People were in debt  Eventually this debt had to be paid-off, then the “ less ” cycle began.

The Stock Market  Bull Market – upward trend in stock prices  1920 ’ s was a continuous bull market  Bear Market – downward trend in stock prices  The Great Depression marked the beginning of a severe Bear Market

Stock Speculation  Speculating “ playing ” the market.  Buying and selling for quick profit.  Buy to create demand  Demand means price goes up  Sell stock at high price  (but the stock was not TRULY worth that high price)  Problem?

Over Speculation  As long as demand continued there was no problem with speculation – UNTIL DEMAND ENDED.  Once demand calmed, overinflated stocks dropped significantly in value.  People owned stock, but no one wanted to buy it.  When demand for a stock falls, what happens to the price?

Margin Buying  Purchasing stocks with borrowed money  Believing one could take a loan, invest it, and make back the loans money plus profit.

The Stock Market Crash  Black Thursday  October 24, 1929  Nervous investors begin to sell their stocks  No buyers  Stocks fall in value

Black Tuesday  October 29, 1929  16 Million shares of stock are dumped by investors.  Prices of stocks plunge.  Margin Buyers found themselves in severe debt.

Herbert Hoover  “ We have passed the worst and … shall rapidly recover. ”  Business leaders, public officials claimed:  Only a minor setback

Banking Crisis  The Run on the Banks  Borrowers defaulted on loans  Banks lost money  Went out of business  Public saw the writing on the wall  Individuals wanted to get their money out of the banks before their bank closed for good!

The Banking Crisis   5,000+ banks fail  Collapse of 1 large New York Bank  Left 400,000 depositors without their savings.

The Run on the Banks  People ran to banks to withdraw money.  Money leaving the banks meant banks had no money to invest, or make loans with.  Therefore, banks had no means of making money.  Banks were forced to close.

Business Failures  Less consumer spending  Less consumption of products  Less profit/money for businesses.  Business Response:  Trimmed inventories  Scaled back production  Laid off employees

Business Failures  1930:  26,000 Businesses went bankrupt  1931:  28,000  Factories and mines were empty.  GNP – Gross National Product  Total value of goods and services produced in a given year  1929 $103 Billion  1933 $56 Billion

Unemployment  1932 – 23.6% Unemployment  (for every 100 people, 23 were jobless)

Global Depression  Massive war debts of Europeans went unpaid.  Foreign consumers were unable to purchase U.S. goods  Factories that sold to foreign countries were forced to shutdown.

Income Gap  Growing income gap  Rich getting richer, poor getting more poor.  Farmers; Laborers  Unable to repay loans  Farmers; Laborers  Not getting a high enough wage to meet the increasing cost of living.

Credit  Some Americans used credit as a means to bridge the income gap, or maintain themselves with the rising cost of living.  Many consumers found themselves unable to pay off their debts.

The (Good) Business Cycle  People spend  Spending creates demand  Businesses have to hire more workers to meet demand  More people spend.  Demand creates jobs

The (Bad) Business Cycle  People do not spend  No demand  Businesses have to lay-off workers because there is no demand  Less people spend  Less people have jobs

Review  Buying on Margin  Bull Market  Bear Market  Black Thursday  Black Tuesday  Explain how the Banking Crisis contributed to the Great Depression.  Explain how business failures contributed to the Great Depression  General Causes of the Great Depression

Essay Question  State the 3 general causes of the Great Depression, provide an EXAMPLE of each, how each contributed to the greatest economic slowdown in American history.