Chapter 30: Great Depression

Chapter 30: Great Depression

1. Shaky Stock Market -> Bank Crisis

   • Promise of financial gain brought new investors to Stock Market
     • Result: Bull Market
       • Correlates with the Speculative Enthusiasm for the Stock Market
     • Borrowing money was easy to do in 1920's
       • Buying On margin
         • Brokers happy to lend money
     • After Black Tuesday, clear to many investors Bear Market had begun
       • Banks caught same fever as everyone in Stock Market
         • They increasingly lended money to Stock Brokers
           • Stock Market Crash happened -> Banks stopped looking like a safe place fore people's money
             • Result: Bank Runs

2. Too Much For Sale Too Little to Spend

   • By 1920 many industries used the assembly-line method of mass production
     • As the 1920's came to end Overproduction overwhelmed economy
       • Companies overproduced because they could.
       • By 1929, the buying spree was coming to an end
         • Everyone had bought what they needed or already wanted by then.
         • Underconsumption was a result of debt and lack of necessity in materials
           • Underconsumption affected Farmers first
             • After WW1 Consumptions of Products decreased and prices dropped.. Caused them to go further into debt. Number of farms and farmers began to decline.
           • Resulting from underconsumption: Unemployment

3. Government Actions Makes a Bad situation Worse

   • Federal Reserve were blamed by economists for further weakening the economy
     • They manage the money supply, one way is by setting the discount rate
       • Members banks use the discount rate to determine the interest rates they will charge borrowers.
       • Before Stock Market Crash, Feds kept interest rates low
         • Made easy borrowing possible
         • Easy borrowing kept money circulating
     • 1931, began raising the discount rate
       • This decreased the amount of money circulating through the economy
         • Turned recession into an economic calamity.
   • Economists also blame Congress for making decisions that further hurt the economy.
     • Congress passed the Hawley-Smoot Tariff act
       • It triggered a trade war that ended up causing the Great Depression to spread around the globe