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Video:5 Causes of Great Depression

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A look at some of the important events that lead to the Great Depression of the 1930'sSee Transcript

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Transcript:5 Causes of Great Depression

The Great Depression in America is one of the most defining moments of US history.   While there are a few key moments that shape the period, the cause is complex, distributed among several factors.  Here are the top five causes.

The Stock Market Crash

The most noted cause of the Great Depression is the stock market crash on Black Tuesday, October 29, 1929.  Americans lost $14 billion dollars on that one day alone and more than $40 billion in the following months.  This is despite millions of dollars being pumped into he market to stabilize it.  The collapse of the stock market would continue for three years before firmly regaining ground.

Bank Failures

In the first ten months of 1930, 744 banks failed.  Throughout the entire decade of the  1930's, 9,000 banks failed and billions of dollars in depositor money went with them.  Several factors converged to decimate the banking industry; loss of money from Black Tuesday, massive withdrawal by frightened customers, defaults on loans, and their own poor investment practices.  Ultimately 4% of all money in US banks would disappear.

Consumer Spending

Prior to the onset of the Great Depression, the US was already facing a downturn in consumer spending.  With the stock market crash and bank failures, these cautionary consumer practices were dramatically increased, beginning a downward spiral where lack of demand for goods and services caused a drop in production which in turn caused a decrease of the workforce.  As unemployment rose, overall consumer capitol fell, which further reduced consumer demand for goods and services.

Tariff Increases

As the global economy collapsed, governments protected themselves at the expense of other countries, a practice known as beggar-thy-neighbor.  One major act in America was the Smoot-Hawley Tariff Act controversially passed June 17, 1930.  This act radically increased US import tariffs in an attempt to promote buying American.  While there was a clear initial benefit, the retaliatory actions by other countries, carrying out much the same practice at the US, severely hurt American exports, which was especially damaging to the agricultural market.

Drought

Plaguing the American Mid-West in the 1930's, a long term drought dried up lands and killed crops.  The direct economic impact was individual inability to pay taxes and a widespread default on loans which crippled over extended banks.  The people affected were often made homeless or displaced, forcing them to travel for work and creating the largest migration in US history.

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