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Customers deposit
money in a bank
Banks invest that money by
making loans
Banks make money on
the interest from loans
Cause & Sparks of Depression
B. SPARK!!! Of the Depression1. Stock Market Crash, Black Thur. Oct. 29, 1929a. Summer 1929, Investors began to sell stocksb. Supply & Demand Again – Massive Sell-Off and prices began to fall2. Margin (Borrowing $$)
- Buy stock by just paying a small portion of what the stock is worth
(example: 100 shares at $10= $1000 only pay $300 still owe $700) -Problem, stock crashes and you loose your money and can’t payback stock broker - stock broker can’t pay back bank
The Stock MarketPeople bought
stocks on marginIf a stock is $100 you
could pay $10 now and the rest later
when the stock rose
Stocks FellThe person had less
than $100 and no money to pay back
Then….People panicked
about their money Investors tried to sell
their stocksThis led to a huge decline
in stock valueStocks were worthless People who bought on
“margins” could not pay Investors were average
people that were broke
• Bank FailuresAnd….
=+People Default on Loans
Banks have no money to give people
Banks ClosePeople Loose
savings
Causes of the Great Depression1.Stock Market Crash of 1929 – Stockholders lost over $40 billion dollars in 1st two months2.Bank Failures – Over 9,000 banks failed.3.Reduction in Purchasing Across the Board – Led to unemployment rate above 25% 4.American Economic Policy with Europe – Smoot Hawley Tariff led to high taxes on imports5.Rising debt led to restrictions on new loans, which led to scarce credit – Federal Reserve tightened the money supply6.Big banks had made huge loans to foreign countries – When money supply grew tight, foreign countries defaulted7.Drought Conditions – The “Dust Bowl” on the Great Plains led to farm failures8.Over Production– Farms & Factories produced a surplus of products