Causes of the Depression

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USA 1919–1945Causes of the Depression

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What can we learn from History?

Work through the following slides about some of the causes and effects of the US depression of the late 1920s/1930s.

Do any of the causes and effects have similar themes to the recent global financial crisis?

Investigate the boom/bust cycle anddiscuss whether learning about the past can help prepare us for the future.

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Long term cause: easy credit

What might happen when people start to lose their confidence in the economy?

Some historians have argued that the high consumer confidence that powered the boom was a key factor in triggering the depression.

Advertising and easy credit through hire purchase, binders and buying on the margin, encouraged people to borrow more money than they could afford to pay back if things went wrong.

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The Florida land boom

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Short term cause: over-confidence

By 1929, share prices had hit an all-time high. Experts began to worry about the profits of companies who could not sell their goods.

However, investors kept on pouring money into buying shares in the hope of making money, whilst secretly, some experts started selling their shares.

Rumours began to circulate that share prices were about

to fall. But it was over-confidence that kept share

prices increasing.

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Big investors secretly start

selling shares.

Rumours start that share

prices will fall.

Panic selling on 24th

October 1929.

Rumours start that share

prices will fall again.

Wall Street crash

Stockbrokers ask investors to pay back borrowed

money.

Bankers try to restore

confidence by buying shares.

Investors start selling shares

to repay borrowed money.

Nobody is buying shares so the prices

crash.