THE GREAT

DEPRESSION
11. CHRISTOPHER CHARLES
21. SIDDHESH GURJAR
31. TEJAS KULKARNI
32. AASHRAY KUNDER
 Depression vs Recession

recession refers to the economy "falling down," while a depression is

a matter of "not being able to get up
recession is a significant decline in activity across the economy,
lasting longer than a few months.
depression is a sustained, long-term downturn in economic activity
in one or more economies.
real gross domestic product (GDP) falls by at least 10%
A depression is much more severe than a recession and the effects
of a depression can last for years
 What was Great Depression?

It was a severe worldwide economic depression that took place

during the 1930s.
It varied across nations, in most countries it started in 1929 and
lasted until 1941
It was the longest, deepest, and most widespread depression of the
20th century.
In the 21st century, it is commonly used as an example of how far
the world's economy can decline.
The Stock Market Crash of 1929

It originated in the United States,

after a major fall in stock prices.
began around October 24, 1929
(Black Thursday), & became
worldwide news with the stock
market crash of October 29, 1929
(Black Tuesday).
The Dow Jones industrial average
plummeted on October 29,1929.
$14 billion was lost in a single day.
Unofficial start of the Great
Depression.
 Major reasons for the stock
market crash of October 1929
On 20th September, the LSE crashed when British investor Clarence
Hatry and his associates were jailed for fraud and forgery.
this weakened the optimism of American investment in markets
overseas.
Selling intensified in mid October, On October 24, the market lost
11% of its value at the opening bell on very heavy trading.
Federal Reserve Stocks were overpriced due to speculation.
Massive fraud and illegal activities occurred due to lack of
regulation and rules.
People were buying stocks on margin or buying using credit.
 Investors would buy stock that they thought would rise quickly, once
the price went as high as they thought it would go, they sold.

Investors only had to put 5% of the stock value down; the

stockbroker loaned the money they didnt even have.

Banks loaned stock brokers money for the margin loans, they used
the savings people had deposited in the bank for these loans.

these savings were not insured.

Causes of The Great Depression

Unequal Distribution of Wealth

High Tariffs and War Debts
Overproduction in Industry and Agriculture
Failure of Banks
Federal Reserve Monetary Policy
Buying on credit
1928 Presidential Elections
1. Unequal Distribution of Wealth

Although the nations wealth grew

by billions throughout the 1920s, it
was not evenly distributed.
The top 1% received a 75%
increase in their disposable
income while the other 99% saw
an average 9% increase in their
disposable income.
80% Americans had no savings at
all.
1. Unequal Distribution of
Wealth(cont)
1. Unequal Distribution of
Wealth(cont)
 2. High Tariff and War Debts

At the end of World War 1, European Nations owed over $10 billions
($ 115 billion as per 2002) to their former ally, US. Their economies were
Devastated and they had no way of paying back the money.
This forced the allies to demand Germany pay the reparations
imposed on her as a result of the Treaty of Versailles. All this later led
to financial crisis when Europe could not purchase goods from the
US.
In 1930, Hawley Smoot tariff was introduced which increased the
import duties to their highest level in American history.
3. Overproduction in Industry and
Agriculture
Factories were producing
products, however wages for
workers were not rising enough for
them to buy them.
Too few workers could afford to
buy the factory output.
The surplus products could not be
sold overseas due to high tariffs
and lack of money in Europe.
3. Overproduction in Industry and
Agriculture(cont)
Due to surpluses and overproduction, farm incomes dropped
throughout the 1920s.
The price of farm land fell from $69 per acre in 1920 to $31 in 1930.
Agriculture was in a depression which began in 1920, lasting until the
outbreak of World War 2 in 1939.
In 1929 the average annual income for an American family was $750,
but for farm families it was only $273.
The problems in the agriculture sector had a large impact since 30% of
Americans still lived on farms.
Wholesale food prices collapsed which led to a lack of money to
purchase new equipment and many farmers could not pay for their
mortgages and lost their farms.
Thousands of farm underwent foreclosure sales.
 4. Failure of Banks

After the crash, many Americans panicked and withdrew their

money from banks.
With no money to lend and the bad loans situation worsening the
banks started to fail.
In 1929, 600 banks failed.
In 1933, 11,000 of the 25,000 banks nationwide had collapsed.
5. Federal Reserve Monetary
Policy
The Federal Reserve System was
created in 1913 to help stabilize
the economy by establishing a
central banking system for the U.S.
A major goal is to deal with bank
panics.
Monetary Policy manipulates the
money supply to help strengthen
the economy.
At the beginning, of the Great
Depression, the Fed did not
address failing banks, and many
scholars argue their idleness
worsened the situation.
6. Buying on Credit

Installment buying, using credit

and paying back in small
amounts, was introduced which
allowed people to buy cars, radios
and other new products of the
1920s.
Millions of average Americans
began speculating in the stock
market in the 1920s by buying
stocks on margin. Speculating is
buying risky stocks out of a desire
to get rich quick, rather than
investing because of a sound
investment.
 7. 1928 Presidential Election

Herbert Hoover (1874-1964), Americas 31st president, took office in

1929, the year the U.S. economy plummeted into the Great
Depression.
Although his predecessors policies undoubtedly contributed to the
crisis, which lasted over a decade, Hoover bore much of the blame
in the minds of the American people.
As the Depression deepened, Hoover failed to recognize the
severity of the situation or leverage the power of the federal
government to squarely address the Iowa-born president was widely
viewed as callous and insensitive toward the suffering of millions of
desperate Americans.
 EFFECTS OF GREAT
DEPRESSION
Great Depression
brought hardships,
hunger and
homelessness to millions
It brought about severe
unemployment across
the country
Some built makeshift
shacks out of scrap
materials
Before long whole
Shantytowns (sometimes
called HOOVERVILLES
in mock reference to the
President) sprung up HOOVERVILLES
 ECONOMIC IMPACTs
Economy shrank 50% in the first 5 years of the Depression
In 1929 economic output was 105$ billion (equal to $1.057 trillion today)
By end of the year 650 banks had failed. The condition worsened further

1930 - GDP shrank 8.5%

1931 - Economy shrank another 6.5%

1932 Economy shrank another 12%

1933 Country suffered 5 years of

losses and it only produced $57
billion.

Efforts were made to revive the economy by way of New Deal spending
The economy shifted from a pure Free Market Economy to a Mixed Economy.
It depended much more on government spending for success.
 POLITICAL IMPACT
Depression shook peoples confidence in
unfettered capitalism that president
Herbert Hoover advocated
People voted for Franklin Roosevelt, who
promised that government spending
would end Depression.
The New Deal worked in 1934 and the
economy grew 10.8%, which again
collapsed in 1938 due to excessive debts.
The Depression ended in 1939 as
government spending ramped up for
World War II.
This led to a mistaken belief that Military
Spending is good for the economy President H. Hoover (left) with his
successor F. Roosevelt
DUST BOWL FALL IN WAGES UNEMPLOYMENT
Destroyed Average family LEVEL
farming in the incomes dropped
Midwest by 40% 1929 3.2%
1931 15.9%
Lasted for 10 Children sent to 1932 23.6%
years orphanages 1933 24.9%
increased by 50%
Prices of 15 million people were
Agricultural Older children left out of work
products home to find work
dropped to New Deal programme
their lowest Led to emergence helped reduce
level of Shanty Towns unemployment
DUST BOWL IMAGES
 END OF THE GOLD STANDARD
Its a monetary system that
directly links a currencys value
to that of gold.

A country on Gold standard

cannot increase the amount of
money in circulation without
increasing its Gold reserves.

To combat Great Depression &

to stimulate the economy the
U.S. abandoned Gold
Standard in 1933.
 FDRS NEW DEAL
The New Deal was the set of federal programs launched by
President Franklin D. Roosevelt after taking office in 1933.

Civilian Conservation Corps - 1933

Federal Housing Administration - 1934
National Industrial Recovery Act 1933
Social Security Act 1935
Securities & Exchange Commission-1935
EFFECT OF GREAT DEPRESSION ON
OTHER ECONOMIES
Australias extreme dependence on agricultural & industrial export
meant it was one of the hardest hit countries.

Germanys Weimar Republic was hit hard as they stopped receiving

loan from USA.

Canada was highly impacted by the Global economic turn down &
Dust Bowl.

In Latin American countries like Chile & Peru, the Depression gave
rise to Fascist movements.
 END OF DEPRESSION

Outbreak of World War II

caused a decrease in the
Unemployment Rate in US.

The US Industry is flooded with

orders for weapons &
ammunition.

Depression ended in 1941 by

the time US entered the war .
 LESSONS LEARNED Does history
repeat .?

Markets are highly

unpredictable & investors must
not get trapped in the web of
speculation.

Organized Regulatory bodies

are essential for monitoring the
stock market & securities.

Efficient government & a

strong Central Bank is required
to formulate policies & take
quick decisions.