Causes of the Great Depression

I. Unchecked Stock Speculation

• Stocks were artificially high.• Investors believed that the stock market

would go up indefinitely.• Company stock became artificially inflated and

bore little relation to the companies actual worth.

• In 1929, investors began to sell their stocks while they could still get a high price for them.

II. Weak and Unregulated Banking Institutions

• No government oversight.

• Money was uninsured, banks made risky investments

• Effect of the stock market crash:• Families lost their savings, depleting banks

already small cash reserves.• People could not pay back loans to banks• Banks could not replace depositors’ money• Many banks had no assets, no cash reserves

and no new money coming in.

III. Overproduction of Goods

• During the 1920s, American industrial production skyrocketed.

• By 1929, many companies had more plants than they actually needed.

• Americans could not consume all of the goods being produced.

IV. Decline of the Farming Industry

• Farmers couldn’t sell their crops.

• With no money coming in, they could not pay back their loans.

• This led to bank closures.

• Dust Bowl

V. Unequal Distribution of Wealth

• 1929 – 1% of the population possessed over 59% of the nation’s wealth.

• Banks tried to encourage spending with credit.• Americans could not repay loans.• The country fell further into debt.