Causes of the Great Depression

6 Causes of the Great Depression

1. Republican domestic and international business policies

2. Unchecked stock speculation

3. Weak and unregulated banking institutions

4. Overproduction of goods

5. Decline of farming industry

6. Unequal Distribution of Wealth

Republican domestic and international business

policies• Trickledown economics

– Policies that are friendly toward big business and the wealthy. The money will come to the less wealthy through jobs and pay increases

• Laizze-Faire – Hands off business policy

• Loaned $11 Bill. To Europe– Could not repay

Unchecked stock speculation

• Speculation:– A person or organization makes a

risky investment in hopes of a quick, large profit

• Buying on margin– Investors put 10 or 20% down on a

stock and the bank loaned the rest.

• Pools:– Groups would buy together to

increase the price of a stock then sell together at an inflated price

• Black Tuesday

Weak and unregulated banking institutions

• Buying on Margin– If the investor could not repay the loan the

bank could seize the stock • After the crash banks lost $ as stocks were

worthless

• Deposits not insured– If the bank lost $, the customers lost money– Families lost life savings

Overproduction of goods

• Inventories of unsold merchandise went up 300% from 1928 to 1929

• To trim costs, businesses begin slowing production, cutting wages and laying off of idle workers

Decline of farming industry• Farmers borrowed from

banks– Could not pay back loans– Banks (customers) lose

• Dust Bowl– Topsoil removed from

plains for farming– Windstorm lifts topsoil

into air– Covered whole Mid-West

in dust

Unequal Distribution of Wealth

• 1929 1% of the nation controlled 54% of the wealth

• 60% of families loved below the poverty line