Causes and Effects of the Great Depression Conditions

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Causes and Effects of the Great Depression Conditions contributing to and resulting from the

Causes and Effects of the Great Depression Conditions contributing to and resulting from the devastating economic downturn of the late 1920 s 1930 s

What is a Depression? A period of severely reduced economic activity (low production), characterized

What is a Depression? A period of severely reduced economic activity (low production), characterized by a sharp rise in unemployment It was called the Great Depression because it was the most devastating economic downturn in US history The following are economic weaknesses that led to the Great Depression that few noticed during the get-rich-quick era of the 1920 s

Cause #1: Depressed Farms and Industries Overproduction and Underconsumption within the agricultural and industrial

Cause #1: Depressed Farms and Industries Overproduction and Underconsumption within the agricultural and industrial sectors of the US economy 1. ) Agriculture: Farmers’ incomes fell during the 1920 s- new technology increased productivity --- leading to crop surpluses --- leading to lower prices --- leading to hard times. 1930 s: banks began to foreclose on mortgages(loans) and farmers lost their farms 2. ) Industry: Textile, lumbering, mining, and railroad industries declined/ Automobile and construction industries suffered from a decrease in orders (overproduction)--- leading to a drop in wages for workers and lay-offs – with incomes cut or loss of jobs, workers and farmers could not buy manufactured goods (underconsumption)- 1933: US unemployment 25%

Cause #2: Wealth Distribution Growing gap in wealth between rich and average Americans: *

Cause #2: Wealth Distribution Growing gap in wealth between rich and average Americans: * Businesses made a lot of money during the 1920 s, but success was not shared with all workers * So people who benefitted from the growth of business became richer and the ordinary Americans lost buying power and could not afford the goods industry was producing (underconsumption): radios, telephones, refrigerators, washing machines and other goods piled up in warehouses

Cause #3: Monetary Policy Federal Reserve restricted the money supply after the crash: *

Cause #3: Monetary Policy Federal Reserve restricted the money supply after the crash: * Speculation and buying on margin led to overvalued stocks, borrowing from brokers who could not pay back banks who had borrowed from the savings of depositors * Federal Reserve wanted to make it difficult to borrow money so that there would not be too much money in circulation – inflation (money loses its value) * Money makes money- amount of money in circulation was not enough to help economy bounce back after crash

Cause #4: Decline in Foreign Trade Weaknesses in the American economy hurt countries all

Cause #4: Decline in Foreign Trade Weaknesses in the American economy hurt countries all over the world: * Leading up to and following the crash, US slowed down loans to foreign countries (many were to help them recover from destruction of World War I). . . banks were loaning so much to brokers for margin loans that less money was available to lend to foreign countries * International trade declined because now those foreign countries had less money to spend on US goods (underconsumption) * High Tariffs (taxes on imported goods) further blocked international trade

Effects of the Great Depression President Hoover tried to raise US confidence Hoover asked

Effects of the Great Depression President Hoover tried to raise US confidence Hoover asked business leaders not to lay off workers or cut wages Hoover suggested city and state governments stimulate their local economies by funding building projects to provide new jobs Hoover gave money to farmers (Agricultural Marketing Act)…measures taken to lessen amount of crops on the market (help prices to go up) Businesses failed, average family income decreased ($2, 300 in 1929 to $1, 600 in 1935)

Effects of the Great Depression Unemployment rose Increase in poverty of Americans- many waited

Effects of the Great Depression Unemployment rose Increase in poverty of Americans- many waited in bread lines for one meal a day Vision of the American dream changed for many Americans Charity funds dried up as more and more people needed it (thousands turned away) Anger and frustration with Hoover by Americans Makeshift cities were set up on the edges of cities. Hoovervilles Hoover felt voluntary action and local programs were best ways to relieve Depression (unsuccessful, however) Largest federal relief agency ever created: Reconstruction Finance Corporation (RFC)gave $2 billion in loans to faltering banks, insurance companies, & railroads RFC- (trickle-down economics) created to stimulate industry and create more jobs

Effects of Great Depression Bonus Army incident Hoover’s popularity was very low—often booed Hoover

Effects of Great Depression Bonus Army incident Hoover’s popularity was very low—often booed Hoover refused to pay for unemployment relief Franklin D. Roosevelt defeated Hoover in the Election of 1932 Africans Americans and other minorities lost jobs before other Americans Farmers lost farms (foreclosed by banks) Many moved west for work and a new life (Okies) Mexican workers faced discrimination and low wages in California and agricultural areas Deported if in cities People moved in with relatives

Lack of Economic Activity In Depressed areas on the country: Factory smokestacks spewed no

Lack of Economic Activity In Depressed areas on the country: Factory smokestacks spewed no smoke Loading docks received no deliveries Construction sites were silent with the skeletons of half -finished buildings Pedestrians seemed to slow their pace (nowhere to go by a certain time)…especially true for unemployed