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Origins of the Great Depression

Origins of the Great Depression. U.S. History II. Causes of the Great Depression. America’s strained economic relationship with Europe Loans for reparations Protective tariffs Next to impossible to sell farm products and manufactured goods abroad.

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Origins of the Great Depression

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  1. Origins of the Great Depression U.S. History II

  2. Causes of the Great Depression • America’s strained economic relationship with Europe • Loans for reparations • Protective tariffs • Next to impossible to sell farm products and manufactured goods abroad http://web.jjay.cuny.edu/~jobrien/reference/thebig4.GIF

  3. Causes of the Great Depression 2. Overproduction in Agriculture • Remnant from World War I (Europe couldn’t absorb the excess foodstuffs) • Prices rose and production increased during the war • Prices fell because of increased supply and farm income declined from $10 Billion to $4 Billion • Agriculture Boom financed by mortgages • Congress attempted to provide support with the McNary-Haugen Bill, which provided federal price supports to key products • Government bought surplus at guaranteed prices, selling it on the world market • Coolidge: “Farmers have never made money. I don’t believe we can do much about it.” http://www.izaak.unh.edu/archives/images/theway/tractor1.jpg

  4. Causes of the Great Depression 3. Industrial Overproduction and Low Wages • Who can afford the goods being manufactured • Product of weak union influence • New technologies challenge old and limit profits • Housing starts fell during the 20s, which affect other industries 4. Expensive consumer goods purchased on credit • Credit: an agreement in which consumers buy now and pay later using the installment plan http://people.hofstra.edu/geotrans/eng/ch1en/conc1en/img/assemblyft.jpg

  5. Causes of the Great Depression 5. Unequal Distribution of Wealth • Income of the wealthiest 1% rose by 75%, while the average increase for everyone else was 9% • 70% earned less than $2500 annually • 80% of families had no savingscv http://usinfo.state.gov/products/pubs/historybrf/images/dancing.jpg http://www.laborsolidarity.info/imag127.gif

  6. An Optimistic Time • “Nothing but blue skies do I see!” • http://www.youtube.com/watch?v=XGxoMwUSg9E • Herbert Hoover’s campaign promise • “In America today, we are nearer a final triumph over poverty than is any other land.”

  7. Fascination with the Stock Market • It seemed like just about everyone had money invested on the market, which brought Americans into contact with it • Only a small percentage actually did (4 million people) • Businessmen who never actually built anything became the new cultural heroes • Marketing stocks and bonds to average Americans is a new and exciting phenomenon • Wall Street entered the mainstream and became Main Street

  8. Causes of the Great Depression • Stock Market Weaknesses (Key Terms) • Dow Jones Industrial Average: measure of stock market’s health, uses 30 representative companies trading on the market • Recession: a brief drop in economic activity • Depression: a prolonged drop in economic activity • Stock: A share of a company- high demand causes prices to rise while low demand causes prices to fall • Stock Market: a market where stocks are traded • Stock Exchange: the physical facilities where traders can buy and sell stock (like the Dow Jones Industrial)

  9. Continued… • Speculation: buying, holding, and selling stocks or bonds to profit from the fluctuation in their price • Relied on manipulation to artificially inflate price of the stock • Investors pooled money, then used connections to make stock look attractive in the news and on the market • Buying on Margin: paying a small percentage of a stock’s price as a down payment and borrowing the rest • Bear Market: marked by pessimism and motivation to sell • Bull Market: marked by confidence and motivation to buy http://en.wikipedia.org/wiki/Image:Charging_Bull_at_Bowling_Green_060621.jpg

  10. Continued • Inflation: general upward movement of prices • Deflation: general downward movement of prices • Gross National Product: market value of all goods and services provided within a country in a year

  11. Warning Signs in 1929 • Economist Roger Babson warned of the possibility of a crash, but he was accused of being unpatriotic • Federal Reserve Board saw the boom as reckless because it was based on credit and speculation, but they issued no public statements • March 1929 witnessed a miniature crash, especially for those who bought on margin- led to the margin call • Panic halted when large banking firm provided credit • Market soared despite economic slowdown- market took on a life of its own

  12. The Crash! • Black Thursday (October 24, 1929) followed by Black Tuesday (October 29, 1929) • 28 million shares changed hands • $30 Billion disappeared Other stocks couldn’t find buyers and Life savings disappeared http://www.umsl.edu/~ryanga/gatsbyparty/WallStreetLaysAnEgg.gif

  13. The Crash! http://www.thegreatdepression.co.uk/wp-content/img/wallstreet_01.jpg http://cache.eb.com/eb/image?id=79518&rendTypeId=4 http://www.sheilaomalley.com/archives/005284.html

  14. http://www.bitsofnews.com/images/graphics/1929_stock_market_crash_large.jpghttp://www.bitsofnews.com/images/graphics/1929_stock_market_crash_large.jpg http://www.tickertapedigest.com/articles/visitor/visitor1.gif

  15. http://college.hmco.com/history/us/resources/shared/primary /source/images/irae.jpg James N. Rosenberg Dies Irae

  16. Immediate Impact • Run on the banks led to bank failure - Over 600 banks failed in 1929 and by 1933 11,000 of the 25,000 in the country had collapsed, taking $850 Million in investments with them http://www.livinghistoryfarm.org/farminginthe30s/media/money0801.jpg

  17. Immediate Impact • Gross National Product was halved: $104 Billion to $59 Billion • 90,000 businesses went bankrupt • Unemployment increased from 3% (1.6 million) to 25% (13 million)

  18. Long-Term Impact • Worldwide Depression • Nations tried to protect their economies • War debts could be paid only because of loans from the US • Europeans sold their American stock • Europeans abandoned the gold standard and devalued their currency in relation to the $ • US clung to gold standard • A Self-perpetuating cycle • Most Americans encountered the Depression through • Lurking unemployment • Tighter Budgets • Soup Kitchens • Breadlines • General Hardship http://www.scs.unr.edu/~kvidoni/breadline.gif

  19. The Federal Reserve • Contributed to the disaster • Interest rates were kept low during the 1920s • Cheap money meant that investors could buy stock “on margin” • High interest rates would have been helpful • The Board raises interest rates, which put pressure on the banks whose fortunes were linked to farmers, merchants, and tradesmen

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