The Great Depression

							                      The Great Depression

The Beginning

   After World War I, America was in high production, high
    spending mode
       o Demand for goods was high, so supply rose to match
       o High demand did not last
               Production continued at high pace, but people
                weren’t buying as much anymore
               Huge surpluses of good start to form
   Government policies hurt farms and industry
       o To protect American companies and farms, government
          put high tariffs on foreign goods
       o Foreign goods don’t sell so foreign markets don’t buy
               American exports suffer
   The Dust Bowl
       o Thousands of farmers had been lured to the central plains
          with the promise of open land and good soil
       o Techniques used in the north and east worked for a while,
          but the top soil in the plains was not intended for this kind
          of farming
               Millions of acres of grassland are destroyed to build
                farms
               In 1931, a drought begins that would last for 8 years
                    With no water, wind begins to erode and
                       literally blow the top soil away, leaving the
                       land useless to farmers
                    Unable to grow crops, farmers have no way to
                       support their families
                           o Thousands of families lose their land
                               and are forced to move
                                   Many go west on the promise of
                                     abundant work available on farms
                                   They arrive in California only to
                                     find that the jobs are not as
                                     plentiful as they were led to
                                     believe and there is steep
                                     competition for them
                                   Workers are forced to do
                                    difficult harvesting for
                                    deplorably low wages
 The stock market
    o People begin investing money in the stock market
    o When demand and production is high, stock values nearly
       quadrupled!
           Many hope to make a quick profit, many do
           Stockbrokers – the people who buy and sell stock
             for other people – start to sell stock on credit
                 Investors are paying only a small percent of
                    the actual value of the stock
                 Buyers were expected to pay for the rest of
                    the stock at a later date
 The Crash
    o By 1929 the bubble burst and stock prices begin to fall
    o Major investors start selling their stock and panic sets in
           Everyone starts trying sell stock, but very few are
             buying
           Stockbrokers demand payment for stock that was
             bought on credit
                 Investors who didn’t have the money to begin
                    with, now have to find a way to pay for stock
                    that is essentially worthless
                 Investors and brokers lose everything


 Bank runs
    o Investors weren’t the only ones losing money in the stock
       market
    o Banks had also invested and had also lost huge amounts
           Panic continues to spread and people want their
            money out of the bank
           Bank runs result
                Huge numbers of people try to withdraw all of
                 their money at once
                Banks did not have enough money on hand to
                 return all their customers’ money
                          o Without backup from the government
                             (Federal Reserve Fund) banks start to
                             fail or close
                          o If your bank closes, you’re out of luck
   Economy sinks lower
      o As people lose their life savings, they are unable to afford
          goods
              Demand plummets, but supply is still high
              With warehouses full of goods and few buyers,
                factories slow or stop production
                     Huge numbers of workers lose their jobs
                     Without jobs, people can spend even less
                          o Eventually businesses start to close,
                             leaving even more people out of work
                          o And the cycle continues downward
   As America enters the 1930’s, it also enters the worst economic
    decline in history – the Great Depression


Depression Spreads

   After WWI, America had been a huge creditor and financial
    supporter in Europe
       o Europe’s countries were very poor and weak while they
          were trying to recover from the war
       o Depended heavily on American investment and credit
             As depression in America becomes worse,
                investors are forced to pull money out of Europe
             Creditors of European businesses start to demand
                their money
                    European businesses don’t have it
                         o A similar cycle begins in Europe
                         o Banks close, money is lost, business
                            slow or shut down, people are out of
                            work
                    The loss of European industry and demand
                      causes a reduced demand for raw materials
                         o Most raw materials were coming from
                            Asia, Africa, and South America
                        o No demand starts to cause businesses
                           there to close, people lost jobs
 Trade and production all over the world is down, unemployment
  is unbelievably high
      o People start to resent their governments
      o Political unrest grows
      o People want new leaders and political change