WHATDUNIT? The Great Depression Mystery

1
WHATDUNIT?The Great Depression Mystery

• The American Economy went from unprecedented
  prosperity in the 1920s to unprecedented misery
  in the 1930s
• Why?

2
The Business Cycle The Ups DOWNs of the Economy
3
The Business Cycle

• BOOM/Prosperity/Peak
• High Demand--gt desire for more profits/higher
  confidence--gtgreater investment --gt more
  production --gthigher employment --gtmore demand
  --gt higher prices (inflation)

4
The Business Cycle

• Contraction/Slowdown
• Inflation/Overproduction --gtless production
  --gtlay offs --gtless spending --gtlower confidence
  --gtless investment --gtless machinery purchased
  --gthigher unemployment
• Until surpluses are used up

5
Peak
Prosperity
Recession
Boom
Contraction
Expansion
Recovery
Bust
Trough
Depression
6
Troughs

• Recession Two successive 1/4s (3 month periods)
  of declining Gross Domestic Product ( of
  government,consumer and business spending)
• Depression Unemployment gt 12

7
Business Cycle

• Expansion/Recovery
• Higher demand --gtsurplus reduction --gtmore
  production --gtrecall of workers --gtmore
  purchasing --gtgreater confidence --gtincreased
  investments --gteconomic growth

8
The Great Depression1930-1941

• Note a nation does not go directly from
  prosperity to a depression
• A nation must first experience a recession

9
Causes of the Great Depression

• Agricultural Overproduction
• Industrial Overproduction
• Overspeculation
• Easy Money (credit)

• Poor Monetary Policy
• Poor Fiscal Policy
• High Tariffs

10
Agricultural Overproduction

• Increased Technology-farm more land
• Good Growing Conditions
• European Nations no longer need help
• Surplus Food
• Supply Outstripping Demand

11
Industrial Overproduction

• Wages not keeping up with inflation
• Thus fewer people able to buy expensive goods
• Supply outstripping Demand
• Surplus housing, autos, etc.

12
Overspeculation

• Get rich quick syndrome
• Margin buying (10 down)
• Lack of government regulation
• Panic selling
• 1929 Stock Market crash

13
Easy Money (credit)

• Interest rates on loans were too low--gt too much
  borrowing
• Interest rates on savings were too low --gttoo
  much spending --gtinflation
• Excessive real estate construction --gt oversupply
  of housing

14
Poor Monetary Policy

• Federal Reserve Increased Interest Rates which
  made money/borrowing more expensive and saving
  more attractive instead of .
• Lowering interest rates to give economy a jump
  start

15
Poor Fiscal Policy

• Hoover Administration Congress cut spending
  raised taxes to balance the budget instead of
• Increasing spending cutting taxes to jump
  start the economy i.e.
• Temporarily Deficit Spending

16
High Tariffs

• Taxed Foreign Imports to protect our products
• Foreign Nations taxed imports from the United
  States in retaliation
• Higher prices fed under-consumption
• Nations stopped paying WWI debt to US

17
Money in Circulation(Currency bank deposits)
Year Money in Circulation (Billions)
1929 26.2
1930 25.1
1931 23.5
1932 20.2
1933 19.2

• Source US Bureau of the Census, Historical
  Statistics of the United States, US Government
  Printing Office, Washington D.C., 1960

18
Number of U.S. Bank Closing Temporarily or
Permanently, 1920-1933
Year Number of Bank Closings
1920 168
1921 505
1922 367
1923 646
1924 775
1925 618
1926 976
1927 669
1928 499
1929 659
1930 1352
1931 2294
1932 1456
1933 4004

• Source US Bureau of the Census, Historical
  Statistics of the United States, US Government
  Printing Office, Washington D.C., 1960

19

• Game 1 Blackhawks vs. Canucks tonight _at_ 9 on VS.
  Watch it.