The Stock Market Crash of 1929and Causes of the Great Depression
First Things FirstThe Stock Market Crash of 1929 is NOT the same thing as the Great Depression
The Crash was one of the causes of the Depression
But what caused The Crash?
Leading up to the The CrashBusiness had been booming in the 1920s (another reason for the term roaring)
But investments during this time were being made with borrowed money i.e. most people didnt actually have the money to cover their full investment
Buying on Margin-- Cause 1Buying on Margin = you borrow some $$ for the stock you are purchasing from the stockbroker In theory, youll pay the broker back when you make money off the stockBut what if the stock never makes money?This is similar to OVERSPECULATION
Over-expansion of Credit Cause 2Credit was expanding like wildRemember what credit is?Money that is loaned to do something (like start a biz, buy a home)But over expansion of credit can be badWhy? What happens if credit dries up?
Businesses start failing for a variety of reasons Businesses started declaring bankruptciesBusiness Failures Cause 3
Bank Deposits and Bank Failures Cause 4Banks starting to run out of money becauseBanks were using peoples money to investBut then the investments failedWhen the economy started to look bad, people rushed the banks to withdrawal their money, but guess what?THE BANKS DIDNT HAVE THE FUNDS!
Black TuesdayOctober 29, 1929 the day of THE CRASHAll the preceding events (on previous slides) lead to this crash$16B of value lost! (About 50% of the stock markets total value)A bad day on Wall Street today is a 10% lossIn that one day, people lost the confidence (TRUST) to ever invest again, soThe next day stocks did not rebound
Impact of Black TuesdayPeople panickedBank runs but banks had no money to give
New investments grounded to a halt
Causes of the Great DepressionThe Crash of 1929 Cause #1
Smoot-Hawley Tariff Act (1930) Cause #2Taxes passed in order to protect American companiesTaxes as high as 50% on importsEurope matched us in retaliationWorld trade dropped 40%
The FEDs Inaction Cause #3The Federal Reserve System (or FED) is the central banking system of the US. The President appoints members to the Board of GovernorsThe FED regulates monetary policy by doing things such as lowering or raising interest ratesThe FED failed to act to prevent the collapse of many banks in the late 1920sThis lead to less and less money being circulated through out the nations economy = BAD