The Great Depression
Stock Market
Established as a system for buying and
The Stock Market Crash of 1929
Bull Market: a period of rising stock prices (1920s)
Margin
buying: stocks on credit (as little as 10%
down)
Margin Call: demanding the investor to repay the loan
at once
The Great Crash
Bull Market lasted only as long as
investors continued putting money into it
Latter half of 1929, the market was
running out of new customers
Investors begin selling, prices slip, more
The Great Crash
The Great Crash
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OCTOBER
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The Great Crash
By November, stock prices have dropped
by over a 1/3
rd
Undermines the economy’s ability to hold
out against other weaknesses…
Bank Failures
Banks lent money to stock speculators; defaulted on loans Banks had invested depositors’ money in the stock marketIf a bank collapsed, depositors lost
Banks in a Tailspin
Banks cut back on loans
=
Less credit available
Banks in a Tailspin
Some banks were forced to close
=
Customers lost their saving
Roots of the Great Depression Declining Agricultural Prosperity Overproduction Unemployment Uneven Distribution of Income High Tariffs
Mistakes of the Federal Reserve
Declining Agricultural Prosperity
Farm prices were at a record high during World
War I, dropped after the war, and never recovered.
Many farmers were unable to pay back bank
loans they had acquired to purchase land, tractors, and other equipment.
Many farmers were foreclosed, and, in farm
states, over 6,200 banks were forced to close.
Legislation to help farmers had been passed by
Congress, but bills to help the farmers were
Uneven Distribution of Income
America was wealthy in the 1920s, but this
wealth did not extend to all segments of society.
The gains made by wealthy Americans in the
1920s far outstripped gains made by the working class.
By the time of the stock market crash, the upper
0.2 % of the population controlled over 40 % of the nation's savings.
On the other hand, over three-quarters of
Uneven Distribution of Income
Problems that could develop from this
situation were obvious.
The bottom three-quarters of families
were too poor to purchase much to help
the economy to continue to flourish.
Furthermore, at the early signs of
economic trouble, many of the wealthiest
Americans, fearing the worst, curtailed
Overproduction
In 1928 and 1929, new goods continued
to be produced, but many people simply
could not afford to buy them.
As a result, layoffs began occurring in
Buying on Installment
During the 1920s, large numbers of Americans
purchased automobiles, refrigerators, vacuum cleaners, and similar household products on credit.
Many Americans simply did not have anywhere
near enough cash to pay for all they had purchased.
The money of many families was tied up making
installment payments for three or four big-ticket items; this prevented them from purchasing
Buying on Installment
Buyers in debt spending Reduce consumption Low
Cut in
The Roots of the Great Depression
The Loss of Export Sales
– No loans to foreign companies
– Foreign companies purchased fewer products from American manufacturers
Hawley-Smoot Tariff
– Raised the average tariff rate to the highest level in American history
Mistakes of the Federal Reserve
REMEMBER, the Federal Reserve:
– Controls the money supply – Regulates interest rates
Raise during times of plenty to control spending Lower during recessions to access credit
Mistakes of the Federal Reserve
1. Encouraged member banks to make risky loans
Kept interest rates low throughout the 20s
2. Low interest rate lead business leaders to think the economy was still expanding
Borrowed more money to expand production =
overproduction
The Depression Worsens
(1932) 30,000 companies went out of
business
(1933) 9,000 banks suspended operations
(1933) 12 millions workers were
unemployed (1/4 of workforce)
Average family income dropped from
The Depression Worsens
The Dust Bowl
– A drop in prices = uncultivated fields
+
– A terrible drought in 1932
Popular Culture
Racism heightened for African, Mexican, and
Asian Americans
Women’s role changed during the Depression
Artists and Intellectual addressed social issues
Radio and Movies shifted encouraged escapism
Popular Literature and Journalism shifted public
Escaping the Depression
Going to the movies provided a way for
Americans to escape the sufferings of
their daily lives.
By 1939, nearly 70 percent of all adults
Escaping the Depression
Most Americans of the 1930s got their
entertainment through radio.
Radio in the 1930s offered soap operas,
comedies, and dramas.
Americans were also offered "high culture"
Escaping the Great Depression
Many authors attempted to capture the
human suffering that was so pronounced
in the 1930s.
– Zora Neale Hurston wrote Their Eyes Were Watching God about growing up black in a small Florida town.
Escaping the Depression
The Depression in Art
– Homeless and
Initial Response
Hoover and the Republicans
“Clean up after yourself”
When Plan “A” does not work...
Hoover Responds
Set up public works (government financed
building projects)
– Challenge: who is going to pay
1. If you raised taxes, it would take money away from customers and hurt businesses already struggling.
2. If the government kept taxes low and ran a
budget deficit it would have to borrow money from banks, thus
making less money available to the
Pumping Money into the Economy
Trying to rescue the banks
– Hoover asked the FRB to put more money into circulation, the Board refused
– Hoover set up the National Credit Corporation
Created a pool of money to enable troubled
banks to continue lending money in their communities
Pumping Money into the Economy
Trying to rescue the banks
– Reconstruction Finance Corporation
Make loans to banks, railroads, and
agricultural institutions
Failed to increase its loans in sufficient
Pumping Money into the Economy
Direct help for citizens
– Hoover strongly opposed the federal
government’s participation in relief
Responsibility belonged to the state and local
governments
– Emergency Relief and Construction Act
$1.5 billion for public works; $300 million in loans
to the states
Hoover’s Legacy
Failed to resolve the crisis of the
Depression
Did expand economic role of government
more than any other previous president
– RFC: first time federal government had
