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

* 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 *

* What is the Dow Jones Industrial Average? (the average value of 30 large, industrial stocks) – indicator of the stock market!

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 *

* 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)

The Bull Market and the “Strong Economy” of the 1920s

* 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

The Great Depression

2.) Over-production and

under-consumption 3.) Low

Interest Rates (Federal

Reserve)

5.) Stock Market

speculation

4.) High Tariffs (Hawley-Smoot Tariff)… meant a

loss of export sales!

1.) Uneven distribution of wealth (failing

DEMAND)… BUBBLE industries!