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
 1930-1932
 5,000+
banks fail
 Collapse
 Left
of 1 large New York Bank
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
 (for
– 23.6% Unemployment
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.