What Seven of the following events led to great depression?

Answer 1

overconfidence in the nation's prosperity

large industries not as successful as they appeared

farmers producing more than they could sell

competition from foreign countries

United States extending loans to foreign countries for the purchase of its products

people buying too much on credit

speculative buying on the Stock Market

OW

Answer 2

1) The Stock Market Crash:

The economy did very well during the 1920's. Calvin Coolidge's "hands-off" policy towards the economy resulted in massive growth and prosperity. Unfortunately, this led to a lot of people who had no idea what they were doing pouring money in to the market. Naturally, this drove stock prices up. As the prices rose, more and more people became convinced they could get rich by pouring their money in to the market as well, and did so.

Impact: Many people took a very big financial hit, and banks and investors who were not careful collapsed or went bankrupt. People became very nervous about investing, banks and financial institutions. This contributed to bank runs (Point #3)

2) Smoot-Hawley

Herbert Hoover was a big believer in tariffs (a tax on imported goods.) He was convinced that this tariff would help American products compete and make America more self-sufficient. He was wrong. He helped push one of the largest tariffs in history through Congress, and almost every nation on Earth immediately imposed a retaliatory tariff on the United States. Our exports dropped precipitously overnight.

Impact: We could not export our way out of the Depression.

3) The Money Supply:

When the economy is in trouble, the Federal Reserve generally makes money more available so that it will be easier for people to get a loan to start or expand a business. This is called a counter-cyclical policy. As the GDP drops, the Fed prints more money. As the economy grows, they buy money back, and take it out of circulation. Hoover pursued a pro-cyclical monetary policy. What does this mean? When the economy was in trouble, he restricted the money supply. This made it extremely difficult for banks to loan any money to anybody, or to keep a decent reserve on -hand. Any difficulty for the bank could result in a "run," a large number of people lining up to withdraw all of their money from the bank. Since banks only hold a small portion of their customer's money in the bank at any given time, many banks collapsed. Since the money supply was restricted, wages began to fall, and people found themselves unable to repay loans or mortgages.

Impact: Instability in the banking system, numerous bank runs and deflation.

4) Attacks on Short Sellers: Both Hoover and FDR attacked short-sellers as unpatriotic. Short-sellers bet on the price of a given stock dropping. One of the fundamentals of any market is that you have to be able to bet on the price going both ways, or a given stock will never find its proper price level. Because of the attacks on short-sellers, this activity virtually stopped, and nobody was certain whether the price levels on the market were accurate or not.

Impact: Risk has a cost, and the stock market did not rebound very quickly because of all of the people who were wondering when or if it would hit bottom.

5) Taxes: FDR raised taxes dramatically everywhere he could. President Coolidge lowered them, and people realized they could keep more of what they earned. Not surprisingly, they worked harder and produced a boom. FDR raised them, and people stopped working as hard. Moreover, FDR talked about raising several other taxes, creating fear that people would be able to keep even less of what they earned. Naturally, people cut back the amount of new business investment and work that they did.

Impact: The uncertainty caused by FDR's tax policy resulted in fewer new businesses, and fewer hours worked by professionals.

6) Regulatory Burden:

Regulations cost money. If you know in-advance what regulations you are going to face in a given business, you can plan for the future. If you have no idea what is coming tomorrow, you are likely to avoid expanding your business, or simply to shut it down. FDR and his cronies regulated the heck out of anything they chose, and they frequently chose at random. Many of the regulations were massive expansions of government power that went well-beyond anything the government had ever done before, so people had no idea what to expect.

Impact: Paralysis for some businesses, death for others.

7) Unions:

FDR was a big believer in unions. He passes several very influential laws that made unions far-more powerful, and far-more easy to organize. These unions resulted in great jobs for a few people, but far-fewer jobs overall. They also reduced the efficiency of the businesses that had to deal with them, meaning they had trouble competing and their prices had to rise.

Impact: Many fewer jobs created, and many uncompetitive businesses.