Causes Of the Great Depression
- Unequal distrubtion of wealth
- High Tariffs
- Over production and under consumption
- Failure of the banking system
- Stock Markert
- The Fed Reverse
Unequal Distrubtion of wealth
The 1920's is known as the 'prosperous' time but..
80% of American's had no saving at all
the top 1% received a 75% increase while other 99% saw 9% increase.
The farms were always in depression, 30% of americans lived in argicultural.
Also affected women and black people, as they were not allowed to take part in the boom. Typical job of women was to stay home, and black people were still being treated as slaves.
However income did rise from $74.36 billion to $98 billion.
During WW1 America had been selling goods aboard. When the war finished America put the tariffs up on goods, to try and stop out flow of gold from America which meant it was too expensive for other countries to buy of them. Other countries followed this pattern and put tariffs on goods which meant America couldn't buy them. World trade contracted to a devastating extent .
Over Production & Under consumption
During the war, American farmers were producing a lot of goods and selling them to other countries. When the war finished this didn't end. Farmers were producing more product that what the country needed this meant that the prices were low and 2/3 of farmers were working at a loss. Factories were producing products wages were not rising enough to buy these products. Also once everyone had a automobile/radio they didn't want a second one therefore too much product.
Failure of the banking system
25,000 banks in America- This meant that there was no structure to the banking system and no main bank to regulate rules etc.
Selling of Gov Sercuties - this therefore increased level of borrowing in the stock markert
No Raise in interest Rates- leads to exessive spending and buying on the margin
Big companines weren't reinvesting- putting there money back into the brookers instead of investing in their own company
Banks were selfish- they were all only concerned by there own needs and didn't help other banks out
Fed held meetings in secret - The people were unaware of what was going on and therefore carried on buying
Charles Mitchell and $25million - This made prices soar high again only to fall all the way down.
Inside dealing, big people could buy stock and sell them to one another and make it look like they were selling well, therefore people would buy them and they would make huge profits.
Buying on the margin people were buying shares with money that they had borrowed from the bank
There was exessive buying and selling which meant that when the stock market did crash there was a huge fall and many people lost a lot of money.
The Fed Reverse
Due to the attuides of the time, the government didn't believe it was there job to get involved with the banks.
Didn't support banks who lend to risky people
Brough the government sercurites, therefore people put there money in shares
In the begining they did not address failing banks
Did not raise interest rates, people just keep spending.