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Causes of the Great Depression
Transcript of Causes of the Great Depression
Tariffs and war debt policies that cut down the foreign market for American goods.
Crisis in the farming sector of the economy
availability of easy credit
unequal distribution of income
Tariffs and War Debts
Hawley-Smoot Tariff Act: established the highest protective tariff in US history.
goal was to protect American farmers and manufacturers from foreign competition.
Actually did the opposite.
Hurt exporting companies and increased unemployment
world trade decreases by 40%
War Reparations were still in effect, hurting many European economies.
During WWI, farmers did okay, with food prices soaring and demand at an all-time high.
After the war, demand fell which led to decreased crop prices.
Farmers produced more crops in order to make more money, but this led to higher supply and lower crop prices.
Farmers went into debt and eventually lost their farms.
US government tried to put in price supports but President Coolidge vetoed the bill twice.
Living on Credit
Many Americans were living beyond their means during the early 1920's. Buying many goods on credit and not being able to pay them back.
Businesses encouraged large consumer debt.
By the late 1920's, Americans were buying less due to their extravagance in the earlier years, rising prices, and stagnant wages
Unequal Distribution of Wealth
The rich got richer and the poor got poorer during the 1920's.
Over 70% of Americans were living on less than $2,500 per year while the wealthiest 1% made $10,000 or more per year
Most families could not afford the products being manufactured except on credit.
Hoover becomes president
Hoover won easily in the election of 1928 and had the support of the people.
Believed in laissez-faire economics. Hands off.
Allowed the stock market to increase unchecked during his presidency.
Normally, that's a good thing, but the market was increasing due to shady deals and sketchy buying principles.
Buying on margin: paying a small percentage of a stock's price as a down payment and borrowing the rest.
October 29, 1929, the stock market crashed.
Bank and Business Failures
People started to panic and withdrew their money out of the banks. However, the banks had invested much of their money in the stock market.
by 1933, 11,000 of the 25,000 banks in the US had closed.
People lost all of their savings due to bank failures.
Unemployment went from 3% in 1929 to 25% in 1933.
Due to unemployment rising, calls for the deportation of Mexican immigrants and Mexican-Americans grew louder leading to 2 million being repatriated back to Mexico. Similar calls were heard regarding European immigrants.
"Farmers have never made money. I don't believe we can do much about it."
This led to massive financial losses around the country. The bubble had burst. In one month, investors lost about $30 billion (!?!)
Signaled the beginning of the Great Depression.
"We in America are nearer to the final triumph over poverty than ever before."
"Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body- the producers and consumers themselves."