Causes of the Great Depression Demand for consumer

Causes of the Great Depression

Demand for consumer goods begins to slow: During the 1920’s businesses produced too much Factories ended up with a Surplus of goods

� Businesses began to cut back on production � When they did not produce as much, they did not need as many workers= unemployment

The illusion of wealth • During the 1920’s wages & farm prices remained low. • This meant that working people and farmers had little money to spend. • Often they had to borrow money or use credit to buy the things they needed or wanted.

The illusion of wealth � Many times they were" buying on credit” pay for an item a little at a time over a period of years � Because of this, many Americans owed much more money than they could pay back in a hurry.

Debt During the 1920 s bankers made unwise loans to businesses and individuals. The businesses used the money to expand, and many of the individuals used the money to invest in stocks

� If the businesses failed, or the value of the stocks went down, the people who had borrowed the money would not be able to repay the loans DEBT

In this case, the money the banks had loaned would be “lost”. When people who had deposited their money in the banks went to get it, it would not be there!

Foreign Trade During the 1920 s trade between the U. S. and other nations went down

European nations had been hurt by World War I & were using most of their money to repair the damage of the war.

• • Foreign Trade Also, many countries had placed high tariffs (taxes) on foreign goods. Because they could not sell as much in Europe, manufacturers had another reason to produce less!

Speculators During the 1920’s many Americans were trying to “get rich quick”.

Speculators Many invested all of their money in real estate or stock market.

Speculators To “get rich faster” they borrowed money to invest. Often they owed much more than they could pay back.

Speculators • This was okay as long as the value of the property or stock went up • If the value of that property or stock went down, they would not be able to pay back what they had borrowed.

Speculators Many people had invested their entire life savings in these efforts to “get rich quick!”

Buying on Margin

Installment loans *loan that is repaid overtime Ex: mortgage, car loan *People are unable to pay back loans

The C R A S H The Immediate cause of the Great Depression was the stock market “crash” that began in late October, 1929.

• the average value of stocks fell drastically. Because suddenly everyone wanted to sell their stocks at once. • Supply was much, much greater than demand, so prices fell • Black Tuesday. October 29, 1929

Effect of the CRASH When the stock market crashed, individuals and banks lost the money they had invested in stock.

Banks also lost the money they had loaned to people to buy stock. Effect of the CRASH

“Bank Run” • People rush to get their money out of the bank

This meant that people who had deposited their money in the bank for “safekeeping” lost their money too, even though they might not have owned any stock

Effects of the CRASH �People suddenly had no money �People could not buy things, stores were selling less. They cut back on their orders from factories. �Because stores were ordering less, the factories did not need to make as much. They cut back on production. �Because the factories were producing less, they did not need as many workers. People were “laid off”. �Because people were out of work, they had no money coming in (this was in the days before unemployment insurance). They could not buy things. �Because people were not buying things…

Buying on margin Installment buying International trade Speculators Overproduction Weaknesses in banking C R A S H

For more information on the crash • http: //www. youtube. com/watch? v=GCQf. MW Aiky. U Crash Course Great Depression