Download The Great Depression

The Great Depression
American Responsibility or Global Situation?
The Great Depression
Some point to the Crash of the Stock Market as the
cause of the Depression…
Not True
Some like to blame the world’s dependency on the Gold
Standard as the cause of the Depression…
Not Accurate
Some blame Herbert Hoover, claiming his “handsoff” economic policies dragged America into the
Depression…
Not By Itself
The Great Depression
The Great Depression was a worldwide event
Caused by a variety of Events
• War Debt from the Great War (1914-1918)
• Dependency on the Gold Standard
• Overproduction of Crops and Manufactured Goods
• Poor Banking, Money Lending, and Investing
• Bad Political Decisions
The Great Depression
How did War Debt impact the world?
• United States = $21 Billion plus another
$5 Billion in loans to Europe
• Great Britain = $40 Billion of which at least
$800 Million was owed to the U.S.
• France = $30 Billion of which at least
$450 Million was owed to the U.S.
• Australia = $1.6 Billion of which at least
$485 Million was owed to Great Britain
$1.175 Billion was raised by Victory Bonds
• Canada = $1.7 Billion which was all financed
internally through Victory Bonds
The Great Depression
How did War Debt impact the world?
• Germany = $40 Billion of internal debt plus
$32 Billion in Reparations
• Austria-Hungary = $24 Billion of internal debt plus
• Russia = $27 Billion of internal debt plus about
$1.8 Billion owed to the United States
• Italy = $12 Billion of internal debt plus about
•$280 Million owed to the United States
The Great Depression
How did the Gold Standard impact the world?
• The Gold Standard was a monetary system in which all
standard currency or bank notes were based on the fixed
weight of gold
• Dependency on the Gold Standard limited nation’s ability to
change monetary policies or print additional currency
• In 1914, most of the nations involved in the war effort
suspended the use of the Gold Standard in exchange for the
use of Bank Notes to fund the war
• By the end of the war, Great Britain had used most of its
Gold stock to purchase weapons and ammunition from the U.S.
• After the war, Germany lost most of its Gold stock to pay
off a portion of their reparations
The Great Depression
How did the Overproduction impact the world?
Increased Food Production
during World War I was
an economic “boom” for
many farmers in the U.S.,
Canada, and Australia,
who borrowed money to
enlarge and modernize
their farms.
World Dependency on U.S. Industrial Goods and
weapons increased during World War I, adding to
the economic “boom” for the United States.
The Great Depression
How did the Overproduction impact the world?
HIGH DEMAND
for consumer goods,
weapons and agricultural
products led to
OVERPRODUCTION.
The Great Depression
How did Poor Banking Practices impact the world?
• A solution to Overproduction was to let buyers
purchase products on Credit.
• The concept of “buying now and paying later”
caught on quickly in the United States and
was “exported” abroad.
• This was the first time personal consumer credit
was made available to the common citizen.
• By the end of the 1920’s, 60% of all cars in the
U.S. were being bought on Credit.
The Great Depression
How did Poor Banking Practices impact the world?
• In the 1920s, the “Federal Reserve set very
low interest rates to encouraged people and foreign
nations to buy on the “installment” plan (on credit.)
• More buyers meant more profit for companies, so
they produced more and more…
so much that a surplus of goods was created!
• In 1929, the Federal Reserve worried that growth
was too rapid, so it decided to raise the interest
rates and tighten the supply of money.
This was a bad miscalculation!
The Great Depression
How did Poor Banking Practices impact the world?
• Facing higher interest rates and accumulating debt,
the purchases of goods began to slow down.
Buying on Credit increased
PERSONAL DEBT
High Interest Rates caused
LESS DEMAND for goods
The Stock Market growth in the 1920s tells
a story of runaway optimism for the future.
The Great Depression
How did Poor Banking Practices impact the world?
• Booming business caused stock prices to rise.
• Stocks were being sold on margin ($10 down for $1000)
• Banks started loaning money to stock buyers
• Wall Street started using stocks as collateral
• If stocks dropped drastically, banks would lose money
• Sudden loss in confidence caused customers to rush
the banks in order to withdraw their savings
• Banks no longer had enough cash to pay customers
• Eventually, over 9,000 Banks failed (90 per month)
The Great Depression
How did Poor Banking Practices impact the world?
Buying on Margin
was a risky market practice.
Bank loans for stock purchases
was an unsound practice.
The Stock Market Crash of 1929 was only a
symptom-not the cause of the Great Depression.
The Stock Market Crash of 1929 was not a one
day event, but a slowly building economic disaster
The Great Depression (1924)
How did Bad Political Decisions impact the world?
• The Dawes Plan: An Attempt to help Germany pay
reparations after the Great War

$800 Million in loans from the U.S. would be
granted to help bolster Germany’s economy

Reparations would be paid gradually starting at
1 Million Marks the first year, increasing by
2 ½ Million annually after the first five years.

The Allies would help reorganize the German
Reichsbank (National Bank)

Sources for reparations money would include
transportation, customs, and excise taxes
The Great Depression (1929)
How did Bad Political Decisions impact the world?
• The Young Plan: A Program to settle the issue of
German reparations by 1930

European nations would not press Germany
for immediate payments

Reduction of Germany’s indebtedness by 90%,
from original $32.3 Billion to $713 Million.

The European Allies agreed that the U.S.
would have to cancel Allied debts for it to work

The United States did not agree
The Great Depression (1930)
How did Bad Political Decisions impact the world?
• The Smoot-Hawley Act: U.S. Tariffs established
to control foreign trade

Greatest Mistake of the Hoover Administration

Raised tariffs on foreign goods up to 50%

European partners retaliated with like tariffs

Everyone forgot the principal of successful
International Trade: It’s a Two Way Street

International Trade declined 33% with
devastating effects on all involved nations
The Great Depression (1932)
How did Bad Political Decisions impact the world?
• The Lausanne Conference: A Meeting to resolve the
German reparations issue

European nations agreed to eliminate the
remaining German reparations payments

The United States rejected the plan

Germany made no further payments due to
economic collapse (Until 1980 & 1995)
Global Depression
(1919-1923)
GERMANY
TREATY of VERSAILLES
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•
•
•
•
Germany lost all their colonial holdings in Africa and Asia
Loss of Colonies meant a loss of drastically needed resources
Loss of the Rhur River Valley caused decline in agriculture
Unemployment rose from 2% to 23%
Gold Reserves had to be used to pay reparations
WEIMER REPUBLIC
•
•
•
•
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Prices of Consumer Goods rose out of control
Tax Revenues were depleted
Government issued un-backed paper money to solve problems
Drastic devaluation of the German Mark occurred
Germany engulfed in hyper-inflation
Global Depression
(1923-1928)
GERMANY
GUSTAV STRESEMANN APPOINTED CHANCELLOR
Germany returned to the Gold Standard
New Stable Currency (Rentemark) issued to end hyper-inflation
Germany accepted the Dawes Plan to improve economy
Germany accepted the Young Plan to reduce reparations debt
German Government used loans to finance state projects (like
the Autobon) instead of helping their economic structure
• Large German Businesses depend heavily on American Bank Loans
•
•
•
•
•
(1928-1929)
• No Industrial Growth
• Unemployment rose to 2 ½ Million
Global Depression
(1929-1932)
GERMANY
EFFECTS OF THE STOCK MARKET CRASH
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•
•
•
•
American Banks demanded repayment of German business loans
American demands for German Imports collapsed
German Industrial Production sank by 40%
Major Bank failures occurred including the German Reichsbank
Unemployment rose from 1.6 Million to 6.12 Million
(1932-1933)
ADOLF HITLER BECAME CHANCELLOR
• Germany abandoned the Gold Standard to improve their economy
• Germany stopped all further reparations payments
• “New Order” Economic Recovery Plan introduced by the NAZI Party
Global Depression
(1918-1925)
BRITISH EMPIRE
EFFECTS OF THE GREAT WAR
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•
•
•
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Great War depleted Britain’s capital and foreign investments
Canadian and Australian companies expanded & increased production
Sluggish British Economy reduced demand for imports
Drop in U.S. Investments caused Britain to reduce investments in U.S.
Canada and Australia became more dependent on loans and credit
(1925-1929)
•
•
•
•
•
Great Britain returned to the Gold Standard to improve their economy
British exports became more expensive on the world market
Workers wages were lowered to offset losses in production
Unemployment rose by 25%
Nationwide strikes occurred in Britain
Global Depression
(1929-1933)
BRITISH EMPIRE
EFFECTS OF THE STOCK MARKET CRASH
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•
•
•
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U.S. Banks demanded repayment of loans to Canada and Australia
U.S. Government demanded repayment of wartime loans to allies
Demands for British made products completely collapsed
British exports became less competitive on the global market
Wages dropped again and Unemployment doubled
(By 1933)
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•
•
•
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British exports had dropped by 50% from its pre-1929 levels
British industrial production dropped by 58% from pre-1929 levels
British national income dropped 55% from pre-1929 levels
Canada’s unemployment rose to 33% of their population
Australia’s unemployment rose to 69% of their population
Global Depression
FRANCE
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•
•
•
•
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Only Moderately effected by the Depression
Avoided dependency on Big Business
Put confidence in the Gold Standard
War time losses of male population kept unemployment low
Used German Reparation payments to pay off U.S. loans
By 1930 – France was world’s largest holder of Gold ($80 Billion)
JAPAN
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•
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Hardly effected by the Depression
Adopted Large stimulus program involving deficit spending
Devaluation of the Yen to prevent hyper-inflation
Replaced Great Britain as dominant exporter of textiles
By 1933 – Depression was over in Japan and Industry doubled
Global Depression
NETHERLANDS
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Neutrality during war prevented high war debt
Lost Germany as a major trade partner
By 1925 – Re-adopted the Gold Standard to stabilize economy
By 1926 – Heavy dependency on foreign trade took its toll
By 1930 – Political instability led to economic difficulty & riots
SOVIET UNION
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•
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•
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Very little effect from the Depression
By 1928 – Adopted Five Year Plan
Strong Industrial Base helped build military
Collective Farms created to feed growing population
Became leading producer of oil, coal, iron, gold, & natural gas
By 1933 – Wage cuts ordered to help support military spending
Communists increased the use of forced labor (political prisoners)
UNEMPLOYMENT PERCENTAGES
(Based on Gelenson & Zellner, 1957, Pg 455)
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
United
States
5.4
2.9
5.4
6.9
5.3
14.2
25.2
36.3
37.6
32.6
30.2
25.4
24.3
27.9
25.2
Britain
11.3
12.5
9.7
10.8
10.4
16.11
21.3
22.1
19.9
16.7
15.5
13.1
10.9
10.8
10.5
France
3.0
11.0
4.0
1.0
2.0
6.5
15.4
14.1
13.8
14.5
10.4
8.1
7.8
7.4
7
Germany
6.8
8
8.8
8.6
13.3
22.7
34.2
43.8
36.2
20.5
16.2
12.0
6.9
3.2
.9
Netherlands Belgium Canada Australia
8.1
1.5
7.0
7.8
7.3
1.4
4.7
6.3
7.5
1.8
2.9
6.2
5.6
.9
2.6
10.0
6.9
1.3
4.2
10.2
7.8
3.6
12.9
18.4
14.8
10.9
17.4
26.5
25.3
19.0
26.0
28.1
26.9
18.9
26.6
24.2
28.0
20.9
20.6
19.6
31.7
17.8
19.1
15.6
32.7
13.5
16.7
11.3
26.9
11.5
15.1
8.4
25.0
14.0
14.1
7.8
19.9
15.9
12.5
6.8