Great Dep Pres


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Great Dep Pres

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