Transcript The Great Depression Begins

The Great
Depression Begins
Causes
Life
Hoover’s Response
Warning Signs Ignored

Farm Industry of the 1920s
 Over-extended
 Crop
mortgages
Surplus
 Failure to meet debts
 Farm Foreclosures
Warning Signs Con’t


Coal and Textile Industry Layoffs
Stock Prices going up (Bull Market)
 Should
be a good thing - should mean that
companies are worth more but…
 Larger number of people investing in hopes of
getting rich (hopefully quick!) = SPECULATION


Bet is that the markets will continue to climb
Causes a demand for more stock
 Stocks


- over-inflated
not necessarily based on companies true value
House of cards waiting to fall
Speculation and Playing the
Stock Market


10% of population in stock market by 1929
Not everyone could afford full price stock
 “Buy on Margin”
 Make a down payment on the stock and pay the rest
when the stock rises enough to cover the loan (Taking
out a loan to buy stock)
 Money to buy comes from a stock broker who gets this
money from the bank
 All is good if the stock goes up
 What if the stock goes down???
 Stock broker calls for repayment of loan = margin
call
 If investor cannot pay the stock is put up for sale
Election of 1928

Herbert Hoover - (R) vs. Alfred E. Smith (D)
 Hoover
- Sec, of Commerce/Food Admin.
 Alfred E. Smith - Governor NY/Catholic
 Hoover runs on Republican tide of prosperity
 Hoover predicts that poverty will one day be
eliminated
 Hoover wins landslide (444 to 87)
The Great Crash - 1929

September 1929
 The selling off begins
 Investors selling to pay off interest on loans
 Professional investors



Stock market was cooling
Sensed danger
October 1929
 Prices
drop further
 Brokerage houses issue mass margin calls

Drives prices down further

Nervous investors look to unload stock and get out
The Great Crash - 1929 con’t

October 29, 1929 = Black Tuesday
A
heart attack for a very sick economy
 16 million shares of stock go up for sale


Stock market loses $10-$15 Billion in value
Mid November
 $30
Billion in losses
The Banking Spiral





Stockbrokers issue margin calls
People unable to pay - broker defaults on
loan
Banks issued the loan - cannot absorb this
many defaulted loans
PLUS!!! Banks had invested depositors
savings into stock market
Banks cut back on loans big time!
 Affected
businesses in particular
 Economy goes into a recession --> Depression
The Banking Spiral Con’t

More banks go under
 No
insurance to protect deposits so if you
had $$ in the bank your $$ is GONE!
 Crisis of Confidence in the Banking
System
Leads to “runs on the bank”
 Banks do not have the $$ on hand to give
 More banks go under
 More deposits lost


By 1932 - 10% (3,500) failed
Worst is yet to come

1930-1933
 Stocks
lose 80% of value
 9 million savings accounts wiped out
 86,000 businesses fail
Causes of the Great Depression

Overproduction and Underconsumption
 More
goods being produced than Americans
could buy (consume)
Due to labor saving machinery
 How much do people need? Can they afford?

Causes of the Great Depression

Uneven Distribution of Wealth
Workers and farmers income falls behind industrial
production and profits
 1/2 of nation at or below the poverty level

Not enough disposable income
 installment buying tries to stimulate but people can
only afford to extend themselves so far
 Just not enough purchasing power to “consume” and
keep the economy going - underconsumption
 Industries cut back but it affects other
industries>>>ripple effect and more layoffs

Causes of the Great Depression
Con’t

Loss of Export Sales
 Other
countries not buying U.S. products b/c
Shift from being a debtor nation to creditor nation
 Government policies affect purchasing power
overseas

Causes of the Great Depression
Con’t

Government Policies affecting Export Sales
 Fordney
McCumber Tarriff (see earlier notes)
 Hawley Smoot Tarriff (see Hoover notes)

Other Government Policies
 Mellon tax policies
 Didn’t help the uneven distribution of wealth
 Encouraged reckless speculation by some
 Opposition
to labor unions keep wages and
purchasing power low
Mistakes by the Federal
Reserve

Before the Depression
 Low interest rates create easy credit
 Banks lent too freely
 Business leaders thought the economy was expanding


Really???Was it???
After the Depression begins
 Raised interest rates tightens credit
 Serious reduction of loans
 Businesses look for other solutions

Lay off workers (Will this help consumption?)
Life During the Depression


“Want in the land of plenty”
Human costs
 25%
unemployment rate
 African Americans jobless rate 6X higher
 Most kept jobs but found hours and wages
reduced
 Families unable to pay rent - evicted


Set up shanty towns called“Hoovervilles”
Unable to find work/shelter become “wanderers”
called “hobos”
 Confidence
 Some unemployable
 Businesses afraid of opening new factories
 Bankers unwilling to lend money
Life Con’t

Starvation - What about all of the surplus?
 Farm prices are so low farmers
 Heat homes by burning crops
 Tried to prevent milk shipments
 Slaughter sheep

destroy crops
Jobless on edge of starvation turn to
 Begging
 Hunger
riots - grocery store break-ins
 Breadlines

Funded by charity or RFC money (see Hoover notes)
Life Con’t

Turn to a wide variety of escape
 Movies
- Hollywood film industry
 Literature

John Steinbeck - Grapes of Wrath
 Radio
Lone Ranger
 Green Hornet
 Soap Operas - The Guiding Light

Review Questions – Everyone is on
the hook. Use your notes and/or
book
List three human costs of the Great
Depression.
 What are five causes of the Great
Depression?
 How can tariffs negatively impact overseas
trade?
 If you were President, what would be your
first course of action?

Hoover’s Response to the
Depression

Tries to paint a picture of optimism
 Goal
is to restore confidence
 Used slogans like “prosperity is just around
the corner”

Fell on deaf ears. What corner are you looking
around Mr. President?
Hoover’s Response Con’t

Asked for cooperation from key business
leaders
leaders – keep employment high
 Finance leaders – continue lending
 Labor leaders - hold off on wage demands
 Industry
Hoover’s Response Con’t

Policies – Actions Taken
 Passed the Hawley Smoot Tariff
 Highest protective tariff in history intended to protect farmers
 Many objections (economists, bankers, newspapers)
 Hoover signs into law
 Builds a tariff wall around the country


Foreign countries restrict purchase of U.S. goods
Foreign trade drops rapidly
 Increased funding for public works projects
 Created a small # of jobs to replace losses in private sector
 To be more effective would require deficit spending

Hoover refuses to do this thinking that it would delay recovery
Hoover’s Response Con’t
 Calls


on Federal Reserve to inject currency
Federal Reserve refuses
Hoover sets up the NCO – National Credit Corporation


Pool of money that allows banks to lend in communities
Not enough to meet the needs
 Reconstruction

Finance Corporation – RFC
Makes loans to railroads, state, local agencies, insurance
companies, banks, building organizations


funds projects that would eventually pay for themselves
Too little, too late
Hoover’s Response Con’t

Affected by his philosophies
 Depression
is part of an economic cycle and would
eventually recover without significant interventions


Laissez Faire
Rugged Individualism
 Direct
gov’t handouts would destroy people’s
motivation

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Weaken self-respect
Reduce local responsibility to help the unfortunate
Vetoed Garner Wagner Bill – Direct Aid to unemployed
Vetoed Norris Bill – gov’t control of electricity producing
dams in the Tennessee Valley
Hoover’s Response Con’t

1932 – Emergency Relief and
Construction Act
 $1.5
billion for public works projects
 $300 million emergency loans to states for
direct relief
 Too late
Outcry and Protests

Hunger Marches – D.C.

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“Feed the hungry – tax the rich”
The Bonus Army –Bonus Marchers
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WWI veterans who had been promised a bonus to be paid in 1945
Bill in front of Congress to pay the bonus early
15,000 camp out in D.C. in support of the bill
Senate votes down the bill
Most go home, some remain


Hoover orders their removal
Police try, two shot  In comes the Army


Calvalry, Infantry, Tanks, Tear gas
Nail in the coffin for Hoover’s reelection campaign
Hoover’s Grade?

Failed to fix the economic crisis
 But
really…..who could? Is it fair to blame
him?
 Expanded role of Federal Gov’t in the
economy (more than any Pres. before)

Failed to connect with the American people
 In
a way that said he understood their
Feelings of failure, shame, humiliation
 Disappointment in the system

 So….we
go shopping for a new candidate