Causes of the Great Depression Mr. Blais America in the World (TVP)

Crash of 1929 – The New York Stock Exchange tripled between 1925 and 1929 (27 up to 87 Billion) – Speculation: engaging in risking business in hopes of making a quick profit – Speculation and stocks – Buy shares, once the price rises you sell them and keep the profits. – Stock on Margin: To maximize profits investors bought stock on a small down payment and borrowed the remainder from their stock broker (i.e. at $200 dollars a share someone would pay $20 and borrow $180 from the stock broker) – Stock on margin ONLY WORKS if the price goes up. If your shares go down you end up actually losing borrowed money, money you don’t have.

Stock Market Begins to Decline – Banks had given out over $7 Billion in loans so that people could buy stock on margin – Black Thursday - $13 Million in shares are traded and sold when stocks’ values drop below the amounts that were borrowed to purchase them and brokers demanded that investors pay back their loans.

Black Tuesday – The Bottom fell out – $16 Million shares were sold when brokers and investors saw the price of shares continue to drop even lower. – This all cost investor $30 Billion dollars in the end (About 1/3 of Americas total production in 1929, or total wages of all Americans in that year) – Banks fail: Banks loaned money to brokers, who then loaned it to investors. With the crash no one could pay back the loans and banks failed. All individual deposits in these banks were lost so people who never bought stock still lost all their money.

Over Production/Under Consumption – Overproduction: producing more than can be sold – Installment buying: helps individuals purchase goods by allowing them to pay for the item in smaller payments stretched over time (Does not work if the family losses their income suddenly) – Though production increased rapidly in the 1920s, wages increased slowly, and employment opportunities did not grow. – The average family earned $2,500 a year in 1929, just enough to sustain itself for the year – 1/5 of the nation lived in poverty

Spiraling Economic Collapse 1. Those who bought stock lost their money in the collapse of the stock market 2. These people lose their purchasing power and can’t buy luxury goods (fridge, radio, stoves, cars) 3. Manufacturers must then slow production by cutting jobs, going part-time, or closing 4. Suppliers of raw materials must also then cut jobs due to a lack of demand for their materials 5. These jobless workers can not make installment payments and lose their property due to the loss of their income 6. Banks now don’t receive any payments on any loans and fail completely, taking everyone’s individual savings accounts with them. 7. With savings now gone, numbers 2 through 6 now repeat