*Ch 9 Vocabulary

*Bank Run * Margin Call

*Bull Market * Public Works

*Foreclosure * Relief

*Hoboes * Speculation

*Installment * Stock Market

Chapter 9

*The Great Depression Begins

*The Causes of the Great Depression

*The Long BULL MARKET

*The 1920’s had been a decade of great growth

*The outlook for the future was rosie. “We are nearer to the final triumph over poverty than over before.” Herbert Hoover

THE ELECTION OF 1928

Hoover (sec of commerce) vs. Smith (1st Catholic nominee)

* Smith – beliefs were an issue

* Hoover – republican led prosperity – won by a landslide

STOCK MARKET SOARS – ‘Bull Market’

* many, including growing middle class, invested heavily

* speculation – buying on margin – margin call

The Great Crash

*Market peaked in September 1929

*THE STOCK MARKET CRASH – October 21, 1929- Stock holders panicked and sold off stocks (often at a loss)

- Banks/brokers panicked and called in margins

- Prices plummeted, causing more stock holders to sell off

*BLACK THURSDAY - October 24, 1929- Men started the day rich, ended it poor/in debt

- More than $16M shares sold, more than $30B value lost

- While crash did not cause the Great Depression (soon to come), it broke the US’s ability to respond to other economic problems

Bank Closures

*Banks had loaned billions to speculators

*Banks had invested money in their banks in stock market

*When stock values crashed, banks lost both the money they invested and the outstanding loans (defaulted)

*Banks cut back drastically on loans, meaning businesses and consumers were unable to borrow money

*Many banks could not absorb their losses and had to close (government did not insure banks at this time)

*BANK RUN – when many depositors withdraw their money at the same time (out of fear the bank will fail). If the bank cannot honor the withdrawal requests, they must close

Roots of the Great Depression

*UNEVEN DISTRIBUTION OF INCOME

*Top 5% earned 30% of wealth, bottom 2/3rds had little/no disposable income

*Overproduction = more efficient factories, long lasting goods

*Farmers woes = over production, low prices, high debt

*Overextension = stopped buying, couldn’t pay what was due

*Downward spiral of economy =

*Decreased sales = laid off workers

*Laid off workers = decreased spending

*Decreased spending = decreased sales

*Etc, etc, etc* UNEMPLOYMENT INSURANCE DID NOT EXIST SO LOSS OF JOB MEANT LOSS

OF EVERYTHING – PRIDE, HOME, FARM,

Roots (continued)

*LOSS OF EXPORT SALES – (U.S. bank loans helped foreign nations afford U.S. made products)

*When stock market crash hit, banks quit loaning money

*To encourage foreign trade, Hoover wanted to lower tariffs, but Congress wanted to protect US made goods here at home. Tariffs were raised in the Hawley-Smoot Tariff Act

*While US purchase of goods was helped, foreign trade dropped

*Less foreign trade = workers laid off = decreased spending = etc

*MISTAKES BY THE FEDERAL RESERVE

*Federal Reserve had lowered interest rates throughout the 20’s

*Banks encouraged to make risky loans

*Business leaders falsely believed economy was still growing (borrowed)

*As SM crash hit, the “FED” raised interest rates, which caused less money to be in circulation/less business activity

*Visual “causes of the G.D.

HOOVERVILLES

*The Depression Worsens

*Hoover believes the economy will eventually fix itself, so government does little to intervene

*By 1930 – 1,352 banks had suspended operations and 30,000+ companies will go under

*¼ of all workers are out of work

*Struggling to Get By*No “safety net” – jobless meant homeless, foodless, hopeless

*“Hoovervilles” will spring up all over (shanty-towns)

*HOBOES – homeless men riding the rails searching for something

*Many immigrants will return to home countries voluntarily, others deported

*The DUST BOWL *Between overplanting and several years of drought, land was ARID – dust

*Winds blew topsoil away – Great Dust Storms (50+ year)

*Some will manage to hold on to land, but most lost their farms

*“Okies” – homeless farmers headed for California in hopes of finding work

* The DUST BOWL ***Between overplanting and several years of drought, land was ARID – dust***Winds blew topsoil away – Great Dust Storms (50+ year)***Some will manage to hold on to land, but most lost their farms***“Okies” – homeless farmers headed for California in hopes of finding work

*Arts and Entertainment

*People needed to escape their troubles – movies/radio helped

*More than 60 million will go to the movies each week in 1930’s

*MOVIES:

*Comedies – Shirley Temple, Marx Brothers

*Cartoons – Walt Disney “Snow White”

*Dramas – Mr. Smith Goes to Washington, Wizard of Oz, Gone with the Wind

*RADIO:

*Comedies –Fibber McGee and Molly

*Dramas – Lone Ranger, Green Hornet

*Soap Operas

*Arts and Entertainment

*LITERATURE:

*The Sound and the Fury

*MAGAZINES: (photographs, articles)

*Time

*Life

*ART

*American Gothic

*Hoover Responds to the Depression

*On Friday October 25, after “Black Thursday”, President Hoover is quoted as saying: “the fundamental business of the country . . . is on sound and prosperous basis.”

*On March 7, “the worst effects of the crash upon employment will have passed during the next 60 days”

*Hoover urged the public and business leaders to act rationally. He failed to inspire confidence and the economy continued to spiral downward

*Hoover’s belief that government should not intervene (American “rugged individualism” would keep things afloat)

*Hoover brought together the leaders of major industries to strategize about solutions, but it did not help

*Hoover’s Reaction (cont)

*Industry leaders pledged to keep factories open

*stop slashing wages, laying people off

*By 1931, they had broken those pledges

*Hoover increased funding for some “public works” jobs

*Somehow, government had to pay for these jobs

*Raising taxes meant less to spend, hurting the economy

*If gov’t went in debt, it would have to borrow money, meaning there was less to loan to businesses and the public, hurting the economy

*Trying to Rescue the Banks

*To get the economy moving, Hoover wanted to increase the money supply – to make loans to businesses

TOO LITTLE - TO LATE

*Hoover asked “The Fed” to release money, they refused

*National Credit Corp (NCC) – pool of money to help banks in trouble to continue to lend money in their communities

*Hoover requested Congress to set up the RECONSTRUCTION FINANCE CORPORATION (RFC) to make loans to businesses

*Direct Help to Citizens

*Hoover strongly opposed direct RELIEF (money given directly to poor people)

*Hurt their self-worth

*Only state and local governments should provide RELIEF

*State/Local and private charity tried, but did not have enough resources to meet the needs

*Congress acted, against President Hoover’s wishes

*$1.5 Billion for public works

*$300 million in emergency loans to state for direct relief

*1st time in US history the federal government provided direct relief to the citizens – but the problem had grown TOO BIG

*In an ANGRY MOOD

*Jan. 1931 – Angry citizens looted a grocery store in OK City

*Feb. 1931 – 100’s of angry citizens smashed the store window of a grocery store and took food

*Crowds began to rally in Washington DC to protest

“Feed the hungry, tax the rich”

• Farmers protested too

• Low prices meant they were losing their farms (foreclosed)

• Farmers began destroying their crops in an effort to push up the prices (by reducing supply)

Bonus Army

*WWI veterans promised $1000 bonuses to be paid in 1945

*Veterans wanted their bonuses NOW, during tough times

*Oregon veterans marched to Washington DC to lobby

*As they moved east, other veterans joined in

*Hoovervilles – set up in parks to house 15,000 veterans

*Congress voted down the bill to pay bonuses immediately, but did provide funds to help veterans get home

*Most veterans continued to demand their bonuses and refused to leave

*Hoover called for all to be cleared out – officer panicked and shot into a crowd killing 2 veterans

*Army officer (Douglas MacArthur) ignored Hoover’s order to clear the buildings but leave the camps. Moved in with troops/tanks/teargas

*Press coverage of the treatment of the veterans harmed Hoover’s reputation even more

*Summary

*Hoover failed to resolve economic crisis

*Did more than any previous president, using the government to try to correct an economic problem

*Reconstruction Finance Corps – 1st federal agency created to stimulate economy during peacetime

- Bonus Army fiasco - Forever tarnished Hoover’s image even though he did not order

troops to attack the Bonus Army

- Hoovervilles- Millions of homeless in camps of shacks/tent

- Farm foreclosures

ESSAYS - CH 9 TEST

*The Great Depression caused the economy to go into a “downward spiral.” Explain what occurred and how that led from one bad thing to the next.

* What was President Hoover’s philosophy about government BEFORE the Great Depression began? How/why did that change and the Great Depression got worse?

*President Hoover finally did begin to use the government to try to stop the problems caused by the Great Depression. Explain 2 actions taken by the government and HOW they were supposed to help