DEPRESSION

What is Depression

•  An economic depression is a severe downturn that lasts several years. 

• It is an unusual and extreme form of recession.• A depression is characterizes by economic factors such

as substantial increase in unemployment, drop in available credit, diminishing output, bankruptcies and sovereign dept defaults, reduce trade and commerce, and sustained volatile in currency values.

Characteristics• Declining business activities

• Falling Prices

• Rising Unemployment

• Increasing Inventories

• Public Fear

• Panic

1920’s Problems

Factories making Too Much, Farms growing too much

Factories Fire Workers (Don’t need them)

Farm Prices fall (Farmers can’t make $$)

Farmers & Factory Workers can’t pay back loans to Banks: DEFAULT!!

Banks Close because they have no money: Loans have not been paid back, can’t give people their savings

BANKS Have NO $$PEOPLE LOST SAVINGS & JOBSNO ONE TO HELP!

Problems Encountered

CAUSES

STOCK MARKET CRASH OF 1929

Over speculation in stock prices soon proved to be detrimental to what had been major success in the market. After reaching an all-time high of 381 points on September 3, 1929, the Dow Jones average began to decrease. Finally, on October 29 or “Black Tuesday”, the market crashes as 16.4 million shared were sold off and the Dow Jones average fell to 198.7 points.

CAUSES

CONSUMER BORROWING

banks had made money on loans they gave to consumers. They would lend money freely to those who wanted to purchase new goods or products. As consumers borrowed money. They purchased goods on credit, which also resulted in heavy individual debt.

CAUSES

BANKS FAILURES

A combination of unpaid loans and bank runs led to the failure of many banks. As banks ran out of money, they soon dug into personal savings accounts to pay back depositors looking to withdraw their money. However, this proved disastrous to those who had their savings stored in banks.

CAUSES

CUTS IN PRODUCTION

As unemployment rose and savings were wipe out, production dropped dramatically. Overproduction increase this drop, as products were not being purchased and there was no need keep producing to make up for this gap.

EFFECTS

EFFECTS

THE GREAT CRASH

With the crash of the stock market, many investors lost everything. The economy had reached its peak of contraction, and thrust the American economy into depression. The ripple effects soon hit businesses and average Americans alike. Business lost out, and through their loses production, employment, and savings failed.

EFFECTS

BACKLASH OF BORROWING

Consumer found themselves in tremendous debt. As more and more Americans were laid off, they could not pay back their loans to banks. As a result, loans went unpaid, and banks failed. Production also slowed as more and more people stopped consuming.

EFFECTS

SAVINGS WIPED OUT

As people rushed to take out their savings from banks, the banks then had to recall loans from borrowers. However, more and more borrowers could not pay back their debt. As a result, many savings were wiped out by banks’ latch ditched efforts to prevent failure, leading to further poverty.

EFFECTS

RISE IN UNEMPLOYMENT

As production decreased, so did business need for labor. Cuts were made, and unemployment increased greatly. With few goods being purchased, and many Americans experiencing a weak buying power, production halted, further hurting the economy.

Solutions

1. NEW DEAL BEGINS- 3 Goals:

a. Relief for Unemployed

b. Plans for Recovery

c. Reforms to Prevent more Depressions

2. Major New Deal Programs

a. Unemployment

*CCC- Civilian Conservation Corp

*PWA- Public Works Administration

*TVA- Tennessee Valley Authority

b. Recovery Plans

*NRA- National Recovery Act

*AAA- Agricultural Adjustment Admin.

c. Prevention Reforms

*FDIC- Federal Deposit Insurance Corporation

*SEC- Securities and Exchange Commission