The Causes of the
Great Depression
* The Bull Market and the “Strong Economy” of the 1920s *
* The Great Crash and Black Tuesday *
* The Roots and Long-Term Causes of the Depression *
Great Depression Fun Facts
* At its highest point during the Great Depression, unemployment reached 25% (1933)
* The Great Depression began in 1929 and ended in 1941 as the U.S. prepared to enter WWII
* Social Security, a program that continues to this day, was introduced by FDR during the Great
Depression (The New Deal)
* The “Roaring Twenties” weren’t roaring for everyone. By 1929, 1% of Americans controlled 40% of
the wealth in this country (this would become a HUGE problem!)
* The Federal Deposit Insurance Corporation (FDIC) was formed in 1934 to insure deposits in banks
and restore customers’ faith in the American banking system (security and relief)
* The Dust Bowl years spanned 1930-1936, when a million acres of farmland across the Plains
became worthless due to severe drought and over-farming
* After the stock market crash in 1929, it took 27 years to reach pre-crash levels
* In 1939, the unemployment rate in America had dropped from a high of 25% to 15%
* Tuesday, October 29, 1929 is known as “Black Tuesday” because of the plunge the stock market
took, and it largely symbolizes the start of the Great Depression
* By 1933, more than 11,000 of the nation’s 25,000 American banks had shuttered, victims of the
Great Depression
* “Hoovervilles” were the catchphrase for the shantytowns that cropped up across the United
States, as homeless Americans improvised with scraps, abandoned cars, and packing crates
The Presidential
Election of 1928
* Herbert Hoover (R)
* Al Smith (D)
The Bull Market and the “Strong Economy” of the 1920s
* Prolonged bull market encouraged people to invest in stock! – STRONG economy!
* Peak of stock market is in August 1929
The Bull Market and the “Strong Economy” of the 1920s
* What is the Dow Jones Industrial Average? (the average value of 30 large, industrial
stocks) – indicator of the stock market!
* If the DJIA is going up, then the stock market is doing well; if the DJIA is going
down, then the stock market is not doing well *
The Bull Market and the “Strong Economy” of the 1920s
* Speculation and buying stocks “on margin” (buying stocks on
margin – 10% necessary – plus speculation led to falsely high stocks)
* Example: with $1,000 an individual could buy $10,000 worth of stock – the other
$9,000 became a loan to the stockbroker… BUT, no worries! (yeah, right)
* IF price of stock rose, investor made a profit (value of stock to $11,000 – investor
made a $1,000 profit)
* IF price of stock fell, the stock broker could make a margin call (call for repayment of
loan all at once)
What was the result of this?
* sensitivity to price change in the stock market; as long as prices were rising, everything was good, if
prices fells, the system fell apart *
The Bull Market and the “Strong Economy” of the 1920s
* False sense of prosperity in the “Roaring Twenties” (wide-gap
between the rich and poor – 60% of population below poverty level; 1% owned 40% of
nation’s wealth)
* Over-production and under-consumption (wages for unskilled
workers barely rose during the 1920s – so, the BUBBLE industries were being created –
consumption could keep up with production only for a short period of time…)
The Great Crash and Black Thursday
*By early October, 1929, the NYSE stock market prices had begun to slowly fluctuate
(August was the high point of the market)
* Monday, Oct. 21, 1929 – Stockbrokers began to make large-scale margin calls (by
that Thursday, Oct. 24, the NYSE had lost 11% of it’s market)
* Panic set in, and on October 24, Black Thursday, a record 12,894,650 shares were
traded!
The Great Crash and Black Tuesday
* Investment companies and leading bankers attempted to stabilize the market by
buying up blocks of stock, producing a moderate rally on Friday (on Monday, the
market went into free fall)
* Black Tuesday (October 29), stock prices collapsed completely and 16,410,030
shares were traded on the NYSE in a single day! ($10-$15 billion lost)
*By mid-November, $30 billion had been lost! (wiped out thousands of investors,
companies – more money lost than all wages earned in 1929)
Banks Begin to Close and Bank Runs
* The History Channel and Bank Runs
* Banks throughout the country had loaned money to potential
investors – when stock market crashed thousands of people lost
ability to pay debts (not THAT bad, but…)
*Banks also began to invest depositor's money into the stock market
(uh-oh)
What was the result of this?
* When stock values collapsed, banks lost money on investments and speculators defaulted on their loans
– banks stopped lending money, making less credit available, send economy into recession and banks
begin to close due to their inability to absorb loses *
Banks Begin to Close and Bank Runs
The Roots and Long-Term Causes of the Great Depression
1.) Uneven
distribution of
wealth (failing
DEMAND)… BUBBLE
industries!
2.) Over-
production and
underconsumption
3.) Low
Interest
Rates (Federal
Reserve)
4.) High Tariffs
(Hawley-Smoot
Tariff)… meant a
loss of export
sales!
The Great
Depression
5.) Stock
Market
speculation