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The Stock Market The Stock Market Crash of 1929 Crash of 1929 and Causes of the Great and Causes of the Great Depression Depression

The Stock Market Crash of 1929 and Causes of the Great Depression

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Page 1: The Stock Market Crash of 1929 and Causes of the Great Depression

The Stock Market The Stock Market Crash of 1929Crash of 1929and Causes of the Great and Causes of the Great

DepressionDepression

Page 2: The Stock Market Crash of 1929 and Causes of the Great Depression

First Things First…First Things First…

►The Stock Market Crash of 1929 is NOT The Stock Market Crash of 1929 is NOT the same thing as the Great the same thing as the Great DepressionDepression

►““The Crash” was one of the causes of The Crash” was one of the causes of the Depressionthe Depression

►But what caused “The Crash”?But what caused “The Crash”?

Page 3: The Stock Market Crash of 1929 and Causes of the Great Depression

Leading up to the “The Leading up to the “The Crash”Crash”

► Business had been booming in the Business had been booming in the 1920s (another reason for the term 1920s (another reason for the term “roaring”)“roaring”)

But investments during this time were being made But investments during this time were being made with borrowed money i.e. most people didn’t with borrowed money i.e. most people didn’t actually have the money to cover their full actually have the money to cover their full

investmentinvestment

Page 4: The Stock Market Crash of 1929 and Causes of the Great Depression

Buying on Margin-- Cause 1Buying on Margin-- Cause 1

►““Buying on Margin” = you borrow Buying on Margin” = you borrow some $$ for the stock you are some $$ for the stock you are purchasing from the stockbroker purchasing from the stockbroker In theory, you’ll pay the broker back when In theory, you’ll pay the broker back when

you make money off the stockyou make money off the stock But what if the stock never makes But what if the stock never makes

money?money? This is similar to OVERSPECULATIONThis is similar to OVERSPECULATION

Page 5: The Stock Market Crash of 1929 and Causes of the Great Depression

Over-expansion of Credit– Cause 2Over-expansion of Credit– Cause 2

►Credit was expanding like wildCredit was expanding like wild►Remember what credit is?Remember what credit is?

Money that is loaned to do something Money that is loaned to do something (like start a biz, buy a home)(like start a biz, buy a home)

►But over expansion of credit can be But over expansion of credit can be badbad

►Why? What happens if credit dries up?Why? What happens if credit dries up?

Page 6: The Stock Market Crash of 1929 and Causes of the Great Depression

►Businesses start failing for a variety of Businesses start failing for a variety of reasons reasons

►Businesses started declaring Businesses started declaring bankruptciesbankruptcies

Business Failures– Cause 3Business Failures– Cause 3

Page 7: The Stock Market Crash of 1929 and Causes of the Great Depression

Bank Deposits and Bank Failures Bank Deposits and Bank Failures – Cause 4– Cause 4

►Banks starting to run out of money Banks starting to run out of money because…because… Banks were using people’s money to Banks were using people’s money to

investinvest But then the investments failedBut then the investments failed When the economy started to look bad, When the economy started to look bad,

people rushed the banks to withdrawal people rushed the banks to withdrawal their money, but guess what?their money, but guess what?

THE BANKS DIDN’T HAVE THE FUNDS!THE BANKS DIDN’T HAVE THE FUNDS!

Page 8: The Stock Market Crash of 1929 and Causes of the Great Depression

““Bank Run”Bank Run”

Page 9: The Stock Market Crash of 1929 and Causes of the Great Depression

Black TuesdayBlack Tuesday

►October 29, 1929– the day of “THE CRASH”October 29, 1929– the day of “THE CRASH”►All the preceding events (on previous All the preceding events (on previous

slides) lead to this crashslides) lead to this crash►$16B of value lost! (About 50% of the $16B of value lost! (About 50% of the

stock market’s total value)stock market’s total value) A “bad day” on Wall Street today is a 10% lossA “bad day” on Wall Street today is a 10% loss

► In that one day, people lost the confidence In that one day, people lost the confidence (TRUST) to ever invest again, so…(TRUST) to ever invest again, so…

►The next day stocks did not rebound The next day stocks did not rebound

Page 10: The Stock Market Crash of 1929 and Causes of the Great Depression
Page 11: The Stock Market Crash of 1929 and Causes of the Great Depression

Impact of Black TuesdayImpact of Black Tuesday

►People panickedPeople panicked ““Bank runs” but banks had no money to Bank runs” but banks had no money to

givegive

►New investments grounded to a haltNew investments grounded to a halt

Page 12: The Stock Market Crash of 1929 and Causes of the Great Depression

Causes of the Great Causes of the Great DepressionDepression

►The Crash of 1929– Cause #1The Crash of 1929– Cause #1

►Smoot-Hawley Tariff Act (1930)– Cause Smoot-Hawley Tariff Act (1930)– Cause #2#2 Taxes passed in order to protect Taxes passed in order to protect

American companiesAmerican companies Taxes as high as 50% on importsTaxes as high as 50% on imports Europe matched us in retaliationEurope matched us in retaliation

World trade dropped 40%World trade dropped 40%

Page 13: The Stock Market Crash of 1929 and Causes of the Great Depression

The FED’s Inaction– Cause The FED’s Inaction– Cause #3#3

► The Federal Reserve System (or FED) is the The Federal Reserve System (or FED) is the central banking system of the US. The President central banking system of the US. The President appoints members to the Board of Governorsappoints members to the Board of Governors

► The FED regulates monetary policy by doing The FED regulates monetary policy by doing things such as lowering or raising interest ratesthings such as lowering or raising interest rates

► The FED failed to act to prevent the collapse of The FED failed to act to prevent the collapse of many banks in the late 1920smany banks in the late 1920s

► This lead to less and less money being circulated This lead to less and less money being circulated through out the nation’s economy = BADthrough out the nation’s economy = BAD

Page 14: The Stock Market Crash of 1929 and Causes of the Great Depression