causes of the great depression (1929-1939) short and long term
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Causes of the Great Causes of the Great DepressionDepression
(1929-1939)(1929-1939)
Causes of the Great Causes of the Great DepressionDepression
(1929-1939)(1929-1939)
Short and Long TermShort and Long Term
The Stock MarketThe Stock Market
• As the economy took off in the 1920s, so did the stock market (law of supply and demand)
• Market ManiaMarket Mania - everyone who could afford stocks (and some who couldn’t were buying)
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““Purchasing stocks every Purchasing stocks every paycheck is the surest paycheck is the surest way to financial success.”way to financial success.” - - Chairman of General Motors - 1929Chairman of General Motors - 1929
TheThe BoomBoom
• Stock ExchangeStock Exchange - organized system for buying and selling shares in corporations
• By 1929, 10%10% of Americans owned stock
• Buying on MarginBuying on Margin - people began to borrow money from stock brokers to purchase more stock. People did not sense any risk.
The Crash - (Short Term The Crash - (Short Term Cause)Cause)• Late September, 1929Late September, 1929 - investors begin
to sell off stocks, resulting in dropping prices for the first time. Brokers demand repayment for stock bought on margin.
• Black Thursday (10/24/29)Black Thursday (10/24/29) - investors panic and sell off stocks at low rates
• 10/29/2910/29/29 - 16 million shares sold and prices plummeted
• NYSE closed for a few days to stop panic selling
How Bad was the Great How Bad was the Great Depression?Depression?
• GNPGNP went from $104 billion in 1929 to $58 billion in 1932
• Unemployment rateUnemployment rate was 25%25% in 1932 and stayed around 20%20% through the thirties
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Long Term Causes of Long Term Causes of the Great Depressionthe Great DepressionLong Term Causes of Long Term Causes of the Great Depressionthe Great Depression
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OverproductionOverproduction
• FactoriesFactories - made so many goods that they couldn’t sell them
• FarmsFarms - to recover from low prices, farmers INCREASED production. Bad move.
• No MarketsNo Markets - Customers had purchased all the durable goods they needed in buying spree of 20s
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Gap Between Rich and Poor was Too Gap Between Rich and Poor was Too WideWide
• In 1929, 33%33% of wealth in hands of only1%1% of population
• 75%75% of Americans live at or below the poverty line
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Credit CrisisCredit Crisis
• Consumers were buying goods on credit
• When they lost their jobs, they couldn’t pay their debts.
• Interest kept increasing their balances even if you don’t spend any more
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Bank FailuresBank Failures - Warning: This is tricky!
• When you take money to the bank for savings, they pay you 2%
• The bank takes your money and loans it to someone else at 8% (thus, the 6% difference is how they make money)
• During the Depression, people needed money and went to the bank to get their savings
• The bank had loaned it out and no one was paying it back. Thus, people lost their savings.
• Banks who ran out of money were said to fail.
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International DepressionInternational Depression
• Most of world still rebuilding from WWI so they have no money, either
• Smoot-Hawley Tariff Act (1930)Smoot-Hawley Tariff Act (1930) - Congress passes a high tariff to protect American companies.
• In response, countries get mad and charge a tariff on U.S. goods, stopping U.S. trade
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UnemploymentUnemployment
• Because of overproduction and lack of markets, workers lost jobs
• In 1932, 25% of Americans were unemployed (10% is considered bad)
• 20% unemployed for most of 1930s• Unemployed people do not spend,
further hurting economy• HoovervillesHoovervilles - shacks built from scrap by
homeless to live in
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