CAUSES OF THE GREAT

DEPRESSION

THE GREAT DEPRESSION KWL•ON YOUR PINK POST IT NOTE WRITE SOMETHING THAT YOU KNOW ABOUT THE GREAT DEPRESSION

•ON YOUR YELLOW POST IT NOTE WRITE SOMETHING THAT YOU WANT TO KNOW ABOUT THE GREAT DEPRESSION

THINK, PAIR, SHARE…DEPRESSION AND RECESSION

Depression:

Long term downturn in economic activity

Recession:

Economic slowdown, seen by many as part of the modern business cycle

OVERVIEW OF THE GREAT DEPRESSIONhttp://

www.youtube.com/watch?v=myEPfcpKCcs

PROSPERITY HIDES TROUBLES• THE REPUBLICAN PARTY DOMINATED THE 1920S

• HOOVER DECLARED, “WE ARE NEARER TO THE FINAL TRIUMPH OVER POVERTY THAN EVER BEFORE IN THE HISTORY OF ANY LAND.”

• HE BELIEVED UNNECESSARY GOVERNMENT THREATENED PROSPERITY

• “RUGGED INDIVIDUALISM”- HE THOUGHT IT WAS IMPORTANT NOT TO DESTROY PEOPLE’S BELIEF IN THEIR OWN RESPONSIBILITY AND POWER.

• CONSUMPTION AND THE GROSS NATIONAL PROFIT WENT UP

• PEOPLE PAID ON CREDIT AND INSTALLMENT PLANS

AGRICULTURAL PROBLEMS• INCREASED CROP DEMANDS DURING WWI

• BOUGHT MORE LAND AND COSTLY EQUIPMENT CAUSING FARMERS TO GO INTO DEBT

• AFTER WWI DEMAND DROPPED BUT PRODUCTION CONTINUED BECAUSE OF EQUIPMENT AND METHODS

• FARMERS WERE FAILING TO SELL THEIR EXCESS CROPS AND CAUSED A RURAL (FARMING) DEPRESSION IN THE 1920S

• POOR WEATHER CONDITIONS ALSO PLAGUED FARMERS

UNEQUAL DISTRIBUTION OF WEALTH• INDUSTRIAL WORKERS THRIVED DURING THE 1920S

• WAGES AND DISPOSABLE INCOME INCREASED

• WORKER PRODUCTIVITY INCREASED SIGNIFICANTLY, BUT WAGE INCREASES DID NOT MATCH

• RICH BECAME RICHER, POOR BECAME LESS POOR

• TOP 5% OF AMERICAN HOUSEHOLDS MADE 30 % OF THE NATION’S WEALTH

• WEALTHIEST WERE NOT CONSUMING ENOUGH TO KEEP ECONOMY BOOMING

EASY CREDIT HIDES PROBLEMS• EXPANSION OF CREDIT HID THE FACT THAT MANY AMERICANS DID NOT HAVE

THE MONEY TO BUY WHAT THEY WANTED OR NEEDED

• INSTALLMENT PLANS WERE USED TO PAY A SMALL DOWN PAYMENT AND THEN PAY THE REST OVER MONTHS OR YEARS

• AMERICANS ACCUMULATED A LOT OF DEBT DURING THE 1920, DESPITE PREVIOUSLY FEARING BUYING ON CREDIT

STOCK MARKET CRASHES• MANY INVESTORS WERE GAMBLING WITH MONEY THEY DID NOT HAVE (CREDIT)

• THE STOCK MARKET BEGAN TO FALL AND INVESTORS BEGAN TO LOSE CONFIDENCE IN THE “BOOMING” MARKET

• NERVOUS INVESTORS BEGAN TO STARTED SELLING THEIR SHARES

• OCTOBER 29, BLACK TUESDAY, THE STOCK MARKET COLLAPSED IN WHAT BECAME KNOWN AS THE GREAT CRASH

• GREAT CRASH REPRESENTED A HALLMARK OF THE NATION’S BUSINESS CYCLE, WHICH EXPLAINED THE PERIODIC GROWTH AND CONTRACTION OF THE ECONOMY

BANKS COLLAPSE

• BANK RUNS (WITHDRAWAL OF MONEY FROM ACCOUNT) OCCURRED BECAUSE AMERICANS FEARED FOR THEIR MONEY

• BY 1932 MORE THAN 3,000 BANKS HAD CLOSED

UNEMPLOYMENT RISES

• SURPLUS OF GOODS AND LESS CONSUMPTION CAUSED BUSINESSES TO DEPEND ON PRODUCTION CUTBACKS

• EMPLOYMENT CUTS OCCURRED TO REDUCE PAYROLL

• INCREASED UNEMPLOYMENT CAUSED INCOMES TO SHRINK WHICH CAUSES CONSUMPTION TO CONTINUE TO DECREASE

• BY 1933, 25% OF ALL AMERICAN WORKERS LOST THEIR JOBS

HAWLEY-SMOOT TARIFF

• THIS TARIFF RAISED PRICES ON FOREIGN IMPORTS SO AMERICAN WOULD BUY AMERICAN PRODUCTS

• EUROPEAN COUNTRIES CREATED PROTECTIVE TARIFFS OF THEIR OWN

• U.S. HAD A SURPLUS OF MATERIALS THAT WERE DIFFICULT TO MOVE IN THE INTERNATIONAL MARKET

• THIS TARIFF ALSO DESTROYED INTERNATIONAL TRADE

GLOBAL DEPRESSION

• EUROPEAN PROBLEMS OF REPARATION PAYMENTS

• GERMANY CEASED THEIR REPARATION PAYMENTS

• U.S. AGREED TO SUSPEND FRANCE AND BRITAIN’S WAR DEBT PAYMENTS

• INTERNATIONAL ECONOMY HAD BEEN LARGELY FUNDED BY U.S. LOANS

• AS A RESULT OF AMERICAN ECONOMIC DOWNTURN, EUROPEAN NATIONS EXPERIENCED THE SAME CYCLE OF BUSINESS FAILURES, BANK COLLAPSES, AND HIGH UNEMPLOYMENT