Explain the various causes and factors leading to the Great Depression
DESCRIPTION: Farmers were VERY successful in WWI They continued into the 1920s borrowing money and buying more land! One of their main buyers was Europe – but Europe wasn’t doing so well economically after the war EFFECT: With a main buyer no longer purchasing from them, farmers began to lose – a lot!
DESCRIPTION: The stock market is ownership in a company – people like you and I buy “stocks”, which is basically buying part of that company! Companies were doing well, so people kept buying and buying and buying... Just to get rich! EFFECTS: People put SO much money into stocks that their price became INFLATED – they weren’t worth that much! This led to an overvaluing of stocks
DESCRIPTION: To try and put more money into the American economy, the government encouraged people to buy American made goods So, they put a high tax on imported items Europe was NOT happy! EFFECTS: So, in turn, THEY put a high tariff on goods they bought from America This practice began to put a decline in American businesses
DESCRIPTION: The Federal Reserve was created after a banking crisis in 1907; supposed to “watch” the economy; had the power to set interest rates for bank loans At first, the Reserve set very LOW rates – more people bought things EFFECTS: Then 1929, they RAISED the rates – less people bought things ... Duh?!
DESCRIPTION: Remember the warm-up? EVERYBODY wanted EVERYTHING! We bought, bought, bought But what happens when we buy too much? Remember Mom & Pop Patrol Shop?! There came a point when there was too much stuff to be bought and not enough people buying it! That’s overproduction! EFFECTS: Businesses who have an excess of things are not making any money – they actually begin to lose money.
DESCRIPTION: Remember this from the beginning of the unit? Remember how I said we would come back to this? People were putting EVERYTHING on “installment buying” plans (like pre-historic credit cards). But, if you borrow more than you make, you can’t pay back ALL of your loans, right?! EFFECTS: The person you borrowed from is NOT happy if you don’t pay them back because THEY aren’t making any money and they slowly begin to lose money!
DESCRIPTION: Back to the stock market! Know how people borrowed money to buy stuff? Why not borrow money to buy stocks too? That’s EXACTLY what people began to do! People put 10-20% of the stocks value down in cash and then “borrowed” the rest (buying on margin). EFEFCTS: But, just like with installment buying, consumers like you and I didn’t pay back our loans... So the stock market begins to lose money and suffer and...
DESCRIPTION: CRASH! November 1929 – known as Black Tuesday The stock market crashes! People call this the “start” of the Great Depression... But HOPEFULLY you see that it was NOT this ONE thing! It may have been the “straw that broke the camel’s back”, but it was not the only factor. EFEFCTS: The inflated balloon finally burst and people (and businesses) lost A LOT of money in the stock market!
So, people RUSH to the banks to get their money – but the Federal Reserve didn’t MAKE banks keep a supply of money on hand (they were actually loaning out most of the money that people deposited). Therefore, at some point, the banks RUN OUT OF MONEY! And, then what do they do? THEY CLOSE! They shut and lock their doors and say sorry! The stock brokers who loaned money to those who “bought on margin” don’t get paid, so THEY go out of business The businesses in the stock market lose money when the stock market crashes, so they go out of business The companies that have loaned money on “installment buying” plans are not getting paid, so they go out of business 25% of Americans are now jobless and unemployed And, THAT, is the start of the Great Depression