Causes of the Depression Farmers n Demand

Causes of the Depression

Farmers n Demand down on farm items – end of war Europeans not buying food – New synthetics (rayon) lower demand for cotton

Farmers n Supply Up – n New ag. methods and equipment increased production Lowers prices for farm goods

Mining & Industry n New industrial methods – assembly lines, new equipment

Mining & Industry increased production-more consumer goods

Mining & Industry n n n n n 1. between 1923 -1929 production up 32% 2. Require less workers -wages only increase 8% 3. Corporate profits up 62% -not invested in company, but into stock market 4. Workers could not afford new goods, so they borrowed money for the goods 5. People were spending large amount of money on non -consumable goods. 6. US puts tariffs on European goods, so Europe put tariffs on US goods, leading to drop in US sales of goods overseas

Banks n n n Banks are lending out a lot of money lending money to Middle Class & Poor to buy goods lending money to Europe

Banks n lending money to stock buyers to buy on Margin

Stock Market n n Many stocks are bought on margin-with profits going back into market

Economic Terms n Buying stocks on margin –paying a small down payment, borrowing the remainder of the money, buying stocks using the stocks you are buying as the collateral for the loan.

Stock Market n Speculation buying drove up Stock prices n Speculation: buying and selling stocks in hope of making a quick profit.

The CRASH n Buying stock at ever increasing rates on speculation:

The CRASH n Buying stock at ever increasing rates on speculation: n (buying and selling stocks in hopes to make a quick profit)

The CRASH n Buying stock at ever increasing rates on speculation: n n (buying and selling stocks in hopes to make a quick profit) Buying on Margin:

The CRASH n Buying stock at ever increasing rates on speculation: n (buying and selling stocks in hopes to make a quick profit) Buying on Margin: (pay a down payment and borrowing the rest) n Margins work as long as the n

The CRASH n Buying stock at ever increasing rates on speculation: n (buying and selling stocks in hopes to make a quick profit) Buying on Margin: (pay a down payment and borrowing the rest) n Margins work as long as the price goes up n

The CRASH n Buying stock at ever increasing rates on speculation: n (buying and selling stocks in hopes to make a quick profit) Buying on Margin: (pay a down payment and borrowing the rest) n Margins work as long as the price goes up n If prices fell, borrowers couldn’t afford to __ n

The CRASH n Buying stock at ever increasing rates on speculation: n (buying and selling stocks in hopes to make a quick profit) Buying on Margin: (pay a down payment and borrowing the rest) n Margins work as long as the price goes up n If prices fell, borrowers couldn’t afford to pay back the loan. n

The CRASH n Sept 3, 1929 stock price reach high point § DOW HIT 381 pts (what is it today? ) § Sept 4 prices start to drift down n Oct 21 st banks start calling in margin loans n Call in $150 million in loans § n n People must repay loans-to pay off loans they must sell the stocks-Panic Oct 23, prices drop sharply Oct 24, record 12. 9 million shares traded § DOW drops 21% § Banks pour in money to hold up market n Oct 29, 1929 BLACK TUESDAY, investors sell 16. 4 million shares at huge losses (drops 23% more). CRASH OF 1929 ( 30 billion dollars disappear!!!!

n By Nov. many industries stocks lose 50% of value. Some as high as 80%. Some are worthless.

Dow Monthly n .

Dow Weekly n .

Banks wanted loans repaid people can’t repay the loans. n n n People could not repay loans Banks run short of money This leaks out people flock to banks to get money out Bank run.

n .

Bank Closures n n n the banks run out of money. Banks close By 1933— 9, 000 banks will go out of business,

n n People are in a panic and stop spending money

n . More business start to lay people off. Huge unemployment 1933— 25% unemployment nationwide

n .

People without jobs lose their homes and farms GREAT DEPRESSION n .

Food Lines & Farm Auctions n .

What gets us out of the Depression n WW II