What Caused the Great Depression?

 

The Stock Market Crash 1929

            most people only owned a small portion of their stocks

            when margins were called in, people couldn’t cover the loans

            these two conditions led to panic selling

            prices of stocks dropped quickly

            on Black Tuesday, they fell 14 billion dollars

            this broke people’s confidence in the economy

 

General Economic Weaknesses:

            Farming had been depressed with drop in prices in world    

                    markets

            Unemployment in railroad, coal, and textile industries

            Speculation in real estate and automobile sales slowed

            General slowdown in consumption caused inventories to grow

 

Unequal Distribution of Wealth

            40 percent of Americans were living at or below the poverty line           

            1 percent of the population owned 59 percent of the nations wealth

            87 percent of the population held 10 percent

            this distribution made the econmy dependent on the spending of the upper

                        class which slowed with the crash of 1929

            Wealthy benefitted from the increase in production while wages were stagnant

                        which led to a decrease in purchasing power for many workers

 

Weak Corporate Structure:

            interconnections of holding companies caused a domino effect when one

                        business collapsed to effect other connected companies

           

Weak Banking Structure:

            over 7,000 banks collapsed during the 1920’s

 

Weak International Economy:

            nations that owed the U.S. money could repay only when U.S. bought foreign

                        goods and made foreign investments

            this situation broke down with the high tariffs that were passed by reducing

                        foreign investment and American purchases of foreign goods

            nations then defaulted on loans because of reduced commerce, many

                        European banks also collapsed     

 

Government Policies:

            no regulation of the stock market

            tax policies which favored the rich and contributed to unequal income

                        distribution

            corporate consolidation wasn’t challenged under anti-trust laws

            Federal Reserve Board allowed low discount rate (which led to stock

                        speculation) and raised rates in 1931 when spending was needed the

                        most

           

            Federal Reserve loans money to member banks:

                        Low Discount rate means more available money

                        Higher Discount means less available money