The Great Depression

Begins

MOD 9

US History

The Nation’s Sick Economy:

•Business was booming

•1920’s = life was prosperous•New inventions (radios, Model T, Refrigerators)

•But…everyone was buying on credit. •Take home now, pay later

•But…No one could pay back their debts•Decreased wages, loss of jobs

•Political

•Harding, Coolidge & Hoover•Laissez Faire philosophy

•Denied Federal Programs to help families•Charity

•“Appearance of Prosperity”

•made people believe economy was strong and would always increase

Main Causes for the Crash

• Farming Problems1. Earliest Sign of economic problems

2. Too many crops during the 1920’s

• Speculation in Stock Market1. Over investing in Stocks

2. The stocks will always be great… not

• Buying on Credit 1. Buy now, Pay later

2. Increased Debt

• Gap between Rich and Poor1. Economy was uneven

• Bank Failures1. Harding, Coolidge and Hoover

• Hawley-Smoot tariff• Hurt world trade

#1: Farmer’s Struggle:

•No industry suffered as much as agriculture

•Post WWI

•Demand for crops fell post WWI

•Deflation – decrease in price for goods

•Farming Overproduction

•=lower prices = less profit

•Couldn’t pay off debts

•Foreclosed on homes / farms•Local rural banks start to fail

#2. Over Speculation

•Speculation:•buying stocks & bonds hoping for a quick profit

•Belief stock market would continue to go up

•Margin:

•paying a small percentage of a stock’s price as a down payment and borrowing the rest

•Buying stock•EX: cost of stock $100

•Person paid $25

•Borrows $75

•Pays 20% interest

#3: Living On Credit:

•Many Americans were living beyond their means.

•Credit•an arrangement in which consumers agreed to buy now and pay later for purchases.

•Consumer debt started to pile on.•Lower wages + lost income = can’t afford debt

•American consumers were buying less

•Rising prices

•Stagnant wages (wages)

•Overbuying on credit

#4 -Gap Between Rich And Poor:

•The gap between rich and poor widened•Rich got richer

•Poor got poorer

•Most American's could not participate in 1920’s

•The wealthiest 1% saw their income rise 75%

•The rest of the population saw an increase of only 9%

Hoover Takes the Nation

• Herbert Hoover- Election of 1928

• Prosperity of 1920’s – Republicans

• “Rugged Individualism”• Individual achievement lead to prosperous economy not the government

• Stock Market

• DOW – Dow Jones Industrial Average• Stock market’s health

• 1920’s stocks constantly rise• 3% of America owned stocks

1929 Crash:Black Tuesday, - Oct 29, 1929

•Stock Market Crash

•People who had bought on margin (credit) were stuck with huge debts

•Start of Great Depression

•1929 – 1940 in which the economy plummeted and unemployment skyrocketed

•Important:

•The crash alone did not cause the Great Depression, but it hastened its arrival

It’s a Wonderful Life – Bank Run

Financial Collapse:

• Banks Fail• People withdrawal money from banks

•Invested in Stock Market

•Government did not insure banks•People couldn’t pay their mortgages = banks lost money and forced to close

•In 1929- 600 banks fail

•By 1933 – 11,000 of the 25,000 banks nationwide had collapsed

•90,000 businesses went bankrupt

•Unemployment leaped from 3% in 1929 to 25% in 1933

•It’s now at about 7%-5%

Hawley-Smoot Tariff:

•Hawley- Smoot Tariff•High tariffs on imported/exported goods

•Intended to protect US producers

•Hurt economy - couldn’t ship to other countries

•Increased unemployment

•Hurt international trade

•World Wide Economic Depression

•Much of Europe suffered throughout the 1920s•Europe had to repair after WWI

•Germany forced to pay reparations

The Great Depression Begins

Summary of the causes of the

Great Depression

• Farming and manufacturing

• Over Production

• Over Speculation in Stock Market

• Buying on Margin

• Buying on Credit

• Debt

• Gap between rich and poor

• Bank Failures

• Hawley-Smooth tariff hurt World Trade• Trigger – Stock market crash

• World Economic problems (Europe war debt)

Section 2

Hardship & Suffering

Hardships During Depression:

•Loss of Jobs, Wages, Homes

•25% Unemployment

•African Americans + Latinos affected

•Racial Discrimination and competition for jobs.

•Hoboes- Unemployed men who wandered the country

•Men started to leave their homes

•Shantytowns - small shack-like towns

•“Hoovervilles”

Soup Kitchens:

•Soup kitchens and bread lines offered free or low-cost food for people

•Even successful businessmen could be found trying to get free food.

• Women

• New types of work and involvement

• Work outside of the home

• Earned less money than men

• Share groceries with neighbors

• Children/Teenagers• Poor nutrition/health problems

• “Hoover Tourists”

• Ride trains

The Dust Bowl:

•Dust Bowl – Great plains region that became worthless for farming

•Over farming during the war

•severe drought gripped the Great Plains in the early 1930s

Effect Of Depression:

•Negatives:•Suicide rate rose more than 30% between 1928-1932•Alcoholism rose sharply in urban areas•Three times as many people were admitted to state mental hospitals as in normal times

•Positives:•Many people showed great kindness to strangers•Additionally, many people developed habits of savings & thriftiness

Section 3:

Hoover’s Philosophy :

•Herbert Hoover•Laissez Faire Philosophy

•“Rugged individualism”•People should take care of themselves, not depend on governmental hand-outs

•Laissez-Faire

•Trickle-Down Economics•Helped top businesses

•Hope profit would trickle down to the poor

•Free or direct handouts would hurt the American people

•Rely on the Government to fix their problems

•He said people should “pull themselves up by their bootstraps”

Hoover Responds to the Depression

Well some progress…

• Federal Home Loan Bank Act• Lowered mortgages rates

• Reconstruction Finance Corporation• Emergency financing

• Banks, life insurance companies, RR and large Businesses

•Boulder Dam (Now called the Hoover Dam)

•This created jobs…but when it was done, there were no jobs

• Hoover did start the road of government assistance• Too little to late

Hoover’s Mistakes

• Hawley-Smoot Tariff

• Highest tariff until this time in US History

• Prevented other European countries to import their goods

• Bonus Army

• WWI Veterans – promised cash bonus for serving in WWI

• Hoover sends the Army to disband the Bonus Army

Hoover’s Philosophy & Action

• Philosophy:• Rugged Individualism – people can/must take care of

themselves through “cooperation”– gov’t needs to stay out

• Associative State – business create associations; associations + gov’t = projects that improve economy

• Action• Hoover Dam: (1930s) 6 companies builds largest dam with

gov’t funding• Smoot-Hawley Tariff Act: (1930) tariff on imports to protect US

companies; Europe imposes tariffs – world trade decreases hurting American companies

• Reconstruction Finance Corporation: (1932) $2 billion in loans for banks, insurance companies and home building