CAUSES OF THE GREAT DEPRESSION

Transition to Modern American

The 1920’s

Discussion Question

When you think of the Great Depression, what year do you think signaled the beginning? 1929

Do you think there is one cause or event that started it? If so, which one?

CAUSES OF THE GREAT DEPRESSION

Impact of tariffs on world trade – high tariffs limited foreign trade and investment and were a barrier to European countries repaying the debts they owed the U.S. following World War I

CAUSES OF THE GREAT DEPRESSION

Stock market speculation – buying stocks on margin (needing only 10% of the price of a stock to be able to complete the purchase) led to rampant speculation (occurs when investors buy shares of stock in a company for the sole purpose of selling them once they increase in value), which led to falsely high stock prices

CAUSES OF THE GREAT DEPRESSION

Bank failures – once the stock market crashed, fearful that banks would fail, millions of Americans began to withdraw their money. Virtually overnight, they put thousands of banks in peril. The more money Americans withdrew, the more banks failed, and the more banks failed, the more money Americans withdrew. Banks were not secure and the money in them was not insured if banks failed. Banks started to fail when people defaulted on their loans.

CAUSES OF THE GREAT DEPRESSION

The monetary policy of the Federal Reserve System – the "Fed" indirectly sets interest rates because it loans money, at a base rate, to commercial banks. In 1928 and 1929, the Fed raised interest rates to try to curb Wall Street speculation.

Causes Leading to the Great Depression in the Lives of U.S. Citizens

1. People put money in banks. 2. Banks gave out loans and invested in the

Stock Market and continued to “buy on the margin”

3. Stock market crashes (October 29, 1929) 4. People make runs on banks to recover their

savings and withdraw money.5. Banks don’t have enough money on hand

and must close their doors6. People fall into poverty

Let’s Practice!

• Put the causes leading to the Great Depression in the correct order.

a) Banks don’t have enough money on hand and must close their doors

b) Banks gave out loans and invested in the Stock Market and continued to “buy on the margin”

c) Stock market crashes (October 29, 1929) d) People put money in banks. e) People fall into poverty f) People make runs on banks to recover their savings

and withdraw money.