Background<br />Began on “Black Tuesday” with the Stock Market Crash on October 1929<br />The market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth and personal advancement<br />Led to a growing inequality between the wealthy and the poor<br />The rich got richer and the poor got poorer<br />The initial government response to the crisis exacerbated the situation; protectionist policies like the 1930<br />Smoot-Hawley Tariff Act stagnated world economy<br />Industries that suffered the most included agriculture, mining, and logging as well as durable goods like construction and automobiles that people postponed<br />Franklin D. Roosevelt's economic recovery plan, the New Deal instituted federal relief programs aimed at aiding the agricultural industries and support labor unions<br />
Causes<br />Money<br />It is anything that society generally accepts as payment for goods and services<br />Used as a medium of exchange<br />Serves as a store of value or a form in which wealth can be held <br />How is money created and controlled? <br />Printed and coined by the federal government<br />Excessive creation of money alternated with bank failures and the collapse of the monetary system<br />National Monetary Commission to formulate a plan for a new American banking system<br />Establishment of the Federal Reserve System in 1913<br />
Causes<br />Main Purpose of the Federal Reserve<br />Prevent the failure of banks<br />The Federal Reserve Act<br />Bank notes were backed by gold, giving the money value<br />Banks paid an interest rate to borrow funds from the Federal Reserve Banks. This interest rate was called the discount rate<br />Federal Reserve<br />Had an easy discount rate<br />This allowed more money to circulate<br />Widespread stock speculation<br />Struggling Farmers<br />Farmers mechanized and accumulated more debt to pay for the latest farming innovation<br />Output increased and crop prices fell<br />Dust Bowl in the Midwest prevented farmers from growing crops<br />
Causes<br />Weak Economy<br />The prosperity of the 1920s was due to car and home sales.<br />Industry produced more than Americans could buy.<br />Lack of disposable income prevented people from buying consumer goods.<br />Decreased sales caused industries to struggle<br />Stock speculators began to sell of their stocks in fear of the losing value. <br />Stock Speculation<br />Many people speculated in the stock market.<br />People bought on the margin<br />Paid a down payment on the stock at a fraction of the price and used those stocks, which were not paid for, as collateral for more stock purchases<br />Brokers began asking for full payments from people<br />People began to sell uncontrollably when prices stopped rising <br />Payments were lost and banks/businesses collapsed<br />
Causes<br />Decline of International Trade<br />Because of World War I<br />European businesses struggled.<br /> Europeans did not have money to buy consumer goods.<br />The US demanded that foreign debts be paid either in dollars or in gold.<br />Made it difficult for Britain and France to pay their loans to us especially when Germany defaulted on their payments to Great Britain and France.<br />US protective tariffs caused European goods to cost more as a result.<br />The Wall Street Crash of 1929<br />In June, factory output started declining.<br />September 3, 1929 was the last day of rising prices.<br />September 5, 1929, economic experts indicated a possible crash in the stock market.<br />October 21, 1929, there was an immense amount of trading on the market. <br />There was so much trading that the tick fell behind by 1 ½ hours<br />Some people did not know they were ruined until after the stock market exchange closed.<br />October 24, 1929, even more stocks were being sold on the stock exchange. <br />Banks intervened by buying stocks in order to stabilize the market. This worked for a few days. (Morgan Bank, Chase National Bank, National City Bank)<br />October 28, 1929, there were massive stock declines.<br />October 29, 1929, people sold their stocks for whatever price they could get. <br />
Consequences of theStock Market Crash<br />Bank Failures<br />Banks made unsound loans<br />Depositor’s savings were wiped out as a result<br />Many people stopped trusting banks with their savings<br />In 1931: 1,300 banks failed<br />Many people began saving their money instead of spending it because of job layoffs and bank failures<br />Federal Reserve made the tight money supply worse by increasing the discount interest rate<br />Discount interest rate: the rate the Federal Reserve charges banks on loans<br />
Consequences of theStock Market Crash<br />Short Term<br />Large speculators lost all of their money<br />These were the people that spent the most money so there was a downturn in spending<br />Many people could not pay back the money they had borrowed to buy shares of stock<br />Because of this, many insurance companies and banks went bankrupt<br />Many Americans lost their entire life savings<br />
Consequences of theStock Market Crash<br />Long Term<br />People kept their money instead of buying new consumer goods<br />Businesses:<br />Cut production further and laid off more workers<br />Reduced the wages of those who still had jobs<br />As workers were laid off or paid less, they bought even fewer goods<br />By 1933, there were 14 million people unemployed and over 5,000 banks had failed<br />Many farmers had lost their land so food began to cost more due to decreased production<br />Many people lost their home and wandered around looking for work<br />Increase in the amount of crime<br />The general health of Americans decreased as malnutrition took its toll on suffering Americans<br />
Life During the Depression<br />Hoovervilles<br />Shanty towns built by homeless people during the Great Depression<br />Named after President Hoover<br />Unemployment rampant<br />Between 1929 and 1932 U.S. GDP fell around 30% and the stock market lost almost 90% of its value<br />Between 1929 and 1932 the income of the average American family was reduced by 40%<br />Unemployment rate in Cleveland, Ohio was 60% and in Toledo, Ohio it was 80%<br />In comparison: Today’s unemployment rate in California is at 13.2%<br />
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