Causes of the Great Depression Notes:

 

Booming Economy:

     Americans believed that the 20’s were unlimited

           growth, opportunity

     Incomes were increasing (43 percent: 61 billion to

           87 billion)

     More money to spend on luxury goods

     Factories increased production via mechanization

           (US owned 75% of all cars in world)

     Business profits increased

     Stock market was at an all time high

 

     In 1929 though cracks were showing in the

     economy

           Unemployment was rising

           farmers were losing their land

           stock prices were dropping

           poverty increased and consumption decreased

 

Republican policies:

     “The business of America is business”   

     “Trickle down economics” (tax cuts on top will trickle

           down); cut government spending and raise

           taxes on middle and lower classes

     Didn’t trickle down though, wages remained low,

           increased investment in machines instead of

           people

     Europeans could not repay US from WWI, US

           demanded payment and rescheduled the loans

           which put the Euros in further debt

     High tariffs cut off US market to Euros so they could

           not pay loans or buy American goods (couldn't

           afford them)

 

 

Real Estate and Stock Speculation:

     California and Florida booms and then busts

     Many scams were perpetrated (swampland)

     Speculators turned to stocks when real estate

           bottomed out

     Stock values inflated when investors continually

           resold it at higher prices

     Pools would buy up large amount of stock which

           fuelled other sales, at peak they sold out large

           amount and the stock fell

    

Stock Market and Banks Collapse

     As many people began selling out, prices fell ,

           companies slowed down, prices fell more

     Massive selling spree hit on Black Tuesday 16 billion

           was lost

     Banks had overextended credit to stock buyers

           wildly partially because they were unregulated

     Depositors money was uninsured, when stocks fell,

           banks lost their loans and seizing the stock

           itself was worthless

     People who lost on stocks withdrew their money

           from banks, depositors money was gone

           because of stock loans

     Unemployment caused people to default on

           mortgages and loans

 

Overproduction

     Consumer demand was high, fuelled by advertising

           which saturated the market

     Farmers overproduced as well which dropped

           prices, foreign demand went down after WWI

           as well

 

 Farmers and the Depression

     Heavy loans (for equip and mortgages) which they

           defaulted on, banks foreclosed but were unable

           to sell, (couldn’t auction it b/c no-one could buy

           it)

     Income dropped as did property values during 1929

           and 1933

     Severe drought hit and turned Plains into a “Dust

           Bowl”

     Farmers fled to California to find land and jobs:

           Okies and Arkies

     Many lived in shantytowns outside of cities in

           California

 

Unequal Distribution of Wealth

     Most of the wealth was in the hands of a small

           number of people

           1 percent controlled 59 percent of the wealth

           60% of Americans lived at or below the

                subsistence level

           Minority populations were even poorer

           Average American income rose 9 percent,

                richest Americans rose 75 %

     Technological unemployment hit hard

     Easy credit allowed many Americans to drop further

           into debt