Causes Of The Great Depression:Part 1

Consumerism: Wanting to buy all of the best right away. It is all about BUYING, BUYING, BUYING, BUYING……

“I want it all, I want it all, I want it all,

and I want it now.”

Great Depression – New Deal Module Two: Causes of The Great Depression – Part 1

Overproduction in Agriculture and IndustryOVERPRODUCTION means making too much of something. How do you know when you have made too much???

You know that you have OVERPRODUCED (made too much) when people will not buy what you made to sell them.

Overproduction in Factories

What do YOU think the banks could do when the farmers and businesses could not pay back their loans???

Overproduction in Agriculture (Farming)

Made TOO much cotton

Sugar in storage

Made TOO much sugar. So much that you could NOT sell all of it.

How much was THIS sugar making the person who grew it?

Auto Assembly

Made TOO many cars. Could NOT sell all of them.

How much were these cars earning for the company.

How much is something worth if nobody wants to buy it??? Nothing.

Oh, people might offer you some amount of money, but they would not pay you enough to even make up for what it cost to make the thing (expenses).

Do this for very long and you go BANKRUPT, out of business. Businesses could not make enough money to pay their EXPENSES (bills) selling products nobody wanted to buy.

Overproduction Question:

Then what will happen when the farmer, or factory owner, can’t pay back their loans because they can’t sell their products?

How will it have an effect on him?

If the smaller bank can’t get back the money people like the farmer and factory owner owe them, what will happen when larger banks this bank owes asks them for their money?

Too Much Debt (What you owe):Consumers Bought “On

Credit” THEN

Could Not Pay Back Debt

Some consumers bought goods on credit but could not pay back their debts – the businesses lost money on the sales and consumers stopped buying new items while they worked to pay off their debts.

People wanted to buy all of the new products that were now available. Of course, if your neighbor had a new car, YOU had to have an even better new car . It was no problem, you were making lots of money at your job because the company you worked for was making LOTS of money.

Fancier Radio

Better Car

Oh, you might not have enough to pay cash for all of this stuff you wanted. Your new house, your new cars,

your new electric washing machine, your new electric vacuum cleaner,

your new electric stove, your new radios, your new record player,

AND all of the new food items now available (Planter's Peanuts, Wheaties, Del Monte canned foods, Birds-Eye frozen vegetables, Peter Pan peanut butter).

What Can You Do???

NO PROBLEM!!! Things were going so well, and you were making a good wage at your job. Because of this you looked like a person who could be trusted. Banks were willing to LOAN you lots of money. All YOU had to do was pay it back a little at a time each month.

Bank

Money

Basic Credit – Debt Facts from 1920’s:

From 1920-1929 Consumer debt rose 131% from 3.3 to 7.6 Billion dollars.

In the 1920s on the average, families increased their debt (amount they owed) an average of $14 per year. This was up from the average of $4 per year just before this. (Increase of 350%)

From 1900-1920 debt hovered at about 4-6 percent of income. In the 1920s this almost doubled to 10%.

Biggest cause of this was the car. By 1926 2 of every 3 cars bought were sold on credit.

Add for a car company, GMAC, saying every car dealer was hooked up with a back to make loans to car buyers.

But what would happen if demand for the product your company made ever

went down too much???

In other words, your company no longer needed as many workers to make the

products.

You would lose your job.

If you lost your job:

•you would not be able to pay the bank back the money you had borrowed.

•Also, if you lost your job you would NOT be going out to buy new stuff.

This means demand for all kinds of products would go down even more.

Everybody would suffer as more businesses began to close because they could not sell their products.

If this happened to too many people, what would happen to the banks?

Think about it, if a bank cannot get the money back that they loaned out, they will be in trouble.

Say you deposited money in a savings account in a bank.

You go back some time later to get it back, but the bank tells you they do not have it. They loaned it out, and cannot get it back!!!

In fact they loaned out so much that they can't get back that THEY can no longer pay their bills, and are going out of business.

Then all the money that you put there for safe keeping ( Savings Account) is gone.

You see, the bank does not keep the money you gave them to save for you right there at their building. They use it to make money for themselves by loaning it out to other people. The BIG problem is that if loans are not paid back then the money is gone.

With all these people working in the computing section of a lender, what does it mean about the amount of borrowing going on?

Too much debt questions:

Describe the problem of too much debt as you learned in the presentation. Use some specific examples.

What SHOULD people have done back in the 1920’s so the problem of too much debt did not become such a big deal?

Pretend you are a person living back then, and have to make a plan for how you are going to spend/use the money you make,. Briefly describe what it would be, and make certain you say how you will deal with borrowing money (getting debt).