Transcript Causes of the Great Depression

The Causes of the
Great Depression
Welcome Back!
• Please complete RSG 14.1 The Nation’s
Sick Economy.
• If you did not take Test Unit 4, please bring
me your packet 11 NOW!
CA Standards
• 11.6 Students analyze the different explanations for the
Great Depression and how the New Deal fundamentally
changed the role of the federal government.
• Describe the monetary issues of the late nineteenth and
early twentieth centuries that gave rise to the
establishment of the Federal Reserve and the weaknesses
in key sectors of the economy in the late 1920s.
• Understand the explanations of the principal causes of the
Great Depression and the steps taken by the Federal
Reserve, Congress, and Presidents Herbert Hoover and
Franklin Delano Roosevelt to combat the economic crisis.
Objective
• Students will be able to
analyze the causes of the
Great Depression by
completing a stock market
simulation.
Opening Activity
• PAIR SHARE
• The year is 1929. The U.S.
economy has collapsed.
• Farms, businesses, and banks
nationwide are failing
• There is massive
unemployment and poverty.
• You are out of work with little
prospect of finding a job.
• What would you do to feed
your family?
Slide #1: The Postwar Economic Boom
• What do you see
here?
• What message does
the billboard send?
• Describe the area
surrounding the
billboard.
• When do you think
the billboard was
created?
• What irony is there
in this photograph?
Slide#1: The Post War Economic Boom
• Twenties Prosperity
• During the 1920s, Americans believed that poverty in the US
would be eliminated. Due to increased earnings, many
Americans had more money to spend on luxury goods such as
a radios and cars. By 1929, the US Stock Market was at an all
time high, over 1.1 billion shares of stock was traded.
• The Depression Foreshadowed
• By late 1929, problems began to surface. Unemployment was
on the rise, farmers were losing their land, and stock prices
were dropping. The number of Americans living in poverty
increased, and few people could afford luxury goods. On
October 29, 1929 the stock market crashed.
• Causes of the Great Depression
• 1.Republican laissez faire in domestic affairs 2. Stock
speculation 3. Unregulated banking institutions 4. overpaid of
goods 5. decline of farming industry 6. unequal distribution of
wealth
Slide#2: Republican Economic Policies
• What do you see here?
• How are the men
dressed?
• Describe their facial
expressions.
• These men are all
conservative
Republicans. With this in
mind, how do you think
they dealt with
business?
Slide#2: Republican Economic Policies
• Domestic Economic Policies
• Republican Presidents Calvin Coolidge and Herbert Hoover
believed in “trickle down” economics. They believed that
economic policies that benefited business and the wealthy
would eventually “trickle down” to average Americans. For
example, if the government gave taxes cuts to the wealthy they
would invest that money into the economy for the benefit of all.
However wealth did not trickle down. The wealthy spent the
money on expanding their work facilities and saved it for
themselves.
• International Economic Policies
• After WW1, European countries were in debt to the U.S. and
began to default on their loans. The U.S. placed high taxes on
foreign goods to discourage Americans from buying their
merchandise. This meant that European goods would not be
sold here causing Europeans to lose more money and further
default on their loans.
Slide#3: Real Estate and Stock Speculation
• Describe what you
see.
• What building do you
see?
• Who are the people on
the ground? On the
building?
• What does this
represent about
stockbrokers during
this period?
Slide#3: Real Estate and Stock Speculation
• Unchecked Stock Market Speculation
• Speculation is when a person or organization makes
a risky investment on the hopes of getting rich quick.
Investors believed that the stock market would go up
indefinitely and that companies’ profits would
continue to rise. So, investors speculated which
companies’ stocks would rise and then bought large
amounts of stock. They would then turn around and
sell the stock for higher price, making a quick easy
profit. The value of a company’s stock became
artificially inflated and did not correlate to the
companies’ actual worth.
• Stock analysts began to predict the market was
headed for a fall. They warned that stock prices
could not continue to rise at such an inflated rate
and that the prices were exceeding the stock’s
actual worth.
Slide #4: The Stock Market Crash and the Banking Industry Collapse
• What do you see here?
• Where is this occurring?
• What are the people
doing?
Black Tuesday
• Slide #4: The Stock Market Crash and the Banking Industry Collapse
• The 1929 Stock Market Crash
• In late 1929 investors began selling their stock while they could still get a
profit from them. As investors began selling, stock prices began to fall. On
10/29/29, or Black Tuesday investors flooded the NYSE with sell at any price
orders. By the end of the day, investors lost $16 billion. By October’s end,
the stock market was in ruins and the Great Depression had officially begun.
• Unregulated Banking Institutions
• Banks collapsed because of the Republican policy of laisse faire and banks’
overextension of credit to stock investors. The government did not prevent
banks from speculating depositor’s money on high risk ventures. It did not
also demand that banks keep a certain percentage of money on reserve and
available. Therefore, when banks folded after the stock market crash, their
customers had no way of getting their money. Banks permitted investors to
buy stocks on large margins of credit. For example, if an investor wanted to
buy $20,000 worth of stock, he only had to put up 10% (2,000) of his money.
The bank would then loan the remaining 90% or $18,000. The bank would
seize the stock if they could not repay the loan as if it were theirs. Banking
officials thought that stocks were good as money and would not go down.
• The Banking Industry Collapse: Results
• Families that played the stock market lost all their money. Investors who had bought stocks on
margin had to sell them at a fraction of their
original price. This meant that they could not pay
the bank the amount it had loaned to him. This
meant that the bank could not replace its own
money, which it had used to fund the speculators
loans. So, even people who didn’t invest in the
stock market lost their money. Unemployment
increased which meant that people began to
default on their mortgages. This meant that banks
lost even more money. By 1932, 1/4 of the nations
banks closed.
Slide #4 Wrap up
• The bank is failing.
How do you think the
depositors trying to
get their money are
feeling?
• How do you think the
bank failures
affected the nation?
Slide #5
Overproduction
• Describe what you
see.
• Why are they doing
this?
• How might the
economic collapse be
explained by what
you see in these two
pictures?
• Slide #5 Overproduction
• Industrial Goods
• Consumer demands for goods was higher after WWI.
Americans wanted to enjoy life after the horrors of WWI.
Advertisements enticed Americans to purchase more
and more goods. As a result, business owners continued
to flood the market with huge supply of goods. By 1929,
there were more products available than people to buy
them.
• Agricultural Goods
• Americans farmers prospered during WWI because they
provided food to the U.S. and Europe. After the war,
farmers mechanized farming techniques to increase
production . However, Europe did not need American
food anymore resulting in an overproduction of crops.
Farmers were stuck with a surplus crops they could not
sell, or could only sell for a low price.
Slide #6: The Toll on the Farming Industry
• Describe what you
see.
• Why are there no
people in the
picture?
• Why did they leave?
Where did they go?
The Dust Bowl
• Slide #6: The Toll on the Farming Industry
• The Farming Industry Decline
• During the 1920’s, farmers borrowed heavily from
banks to pay for new equipment. When farmers could
not sell their crops, they could not pay their loans.
Farmers defaulted on their loans and they lost their
farms to bank foreclosures. The banks would then try
to sell the farm, but there were few that could afford to
buy it. This meant that the bank lost even more
money.
• The Dust Bowl
• A severe drought caused the soil to turn into dust.
Farmers and their families fled the Dust Bowl and
headed west to California in search of employment.
People referred to these as migrants farmers as
“Okies”. Unable to pay for adequate housing, the
Okies were forced to live in shacks.
Slide #7: Unequal
Distributions of Wealth
• Describe what you see.
• Where do you think they
are going?
• How is their life different
from the doorman?
• How would the gap
between the rich and the
poor contribute to the
economic collapse of the
1920’s?
• Slide #7: Unequal Distributions of Wealth
• The Gap Between the Rich and Poor
• During the 1920’s, the gap grew wider and distribution of
wealth grew unequal. In 1929, 1% of the population
owned 59% of the nations wealth. 60% of U.S. families
lived on or below the poverty line. Workers struggled to
survive in the 1920’s. Companies replaced workers with
machines that produced goods faster and cheaper.
Corporations rarely passed profits onto the workers with
higher wages. Instead they kept wages low and used the
money to improve their facilities.
• Purchasing Power is Lost.
• Banks and business tried to encourage consumer
spending by allowing people to buy things on credit. But
Americans fell deeper and deeper into debt as they
purchased items they couldn’t afford and paid the high
interest on them. By 1929, Americans could not afford
basic necessities let alone luxury goods. A small handful
of wealthy Americans could not fill in the gap for the
entire nation. Sales dropped and companies began to
fail.
The Great Depression