Transcript 6.3a

USHC- 6.3a
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Explain the causes and consequences of the Great
Depression, including the disparities in incomes and
wealth distribution; the collapse of the farm economy
and the effects of the Dust Bowl; limited government
regulation; taxes, investment; and stock market
speculation; policies of the federal government and the
Federal Reserve System; and the effects of the
Depression on the people.
Introduction
***The 1920’s seemed prosperous with high
employment rates and little or no inflation
 Industrial production and per capita income were both up,
however, this was false prosperity.
 Disparity in incomes and the distribution of wealth was
very large and uneven
 ***A great majority of Americans lived below the poverty
line ($2500 in 1929)
 Wages for most workers fell or stayed constant for most
of the 1920’s
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***Companies did not pass their prosperity to their
workers, and they could not afford to purchase the
goods they manufactured.
When consumers reached the limit of their credit, they
had to stop spending.
***The drop is consumer spending led to layoffs
and furthered the inability for workers to spend.
This started a downward spiral for the economy
Farmers in the 1920’s
Farmers had done well during the WWI years.
 New machinery allowed them to produce more,
but this resulted in overproduction and
agricultural prices dropped drastically in the
1920’s.
 ***Coolidge vetoed all farm aid bills and as a
result many farms went bankrupt or were
foreclosed.
 ***Because the banks did not get paid back,
many of them failed which limited the
number of loans available for small business.
This kept them from expanding and hiring.
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Origins of Stock Market Crash
Under the Republican administrations, the
federal government limited regulations on big
business that it started with the “trustbusting”
Teddy Roosevelt
 Corporations became increasingly powerful, the
tariff was raised, and the Supreme Court
overturned limitations on child labor and
minimum wage for women
 ***Income taxes for the wealthy were slashed,
but this did not help the economy
 ***Much of their tax savings were
invested in the stock market instead
of new factories
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Black Tuesday - The Great Crash
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***Stock speculation- high risk investments
and hoping for a large return.
***Buying on margin- paying only a small
percentage of what the stock is worth and
taking out loans to cover the rest.
***The Great Crash- October 29th, 1929
***The country panics and races to get their
money out of the stock market by selling their
stock. Banks call in their margin loans.
***In a single day losses totaled over $30 billion
dollars.
***This marks the beginning of the
Great Depression. (just signaled the
beginning…did not cause the Depression!)
The Federal Reserve
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Early in the 1920’s, the Fed pursued easy credit
policies
By charging low interest rates to its member
banks, the Fed helped fuel speculation mania in
the stock market
In the late 1920’s, the Fed initiated a tight
money policy in an effort to curb stock market
speculation
By charging higher interest rates for loans, the
Fed discouraged lending.
After the crash, they continued to increase
interest rates, thus, limiting the supply of money
If the Fed would have cut the interest rates and
expanded the money supply, the depression
may not have been as intense or long lasting
President Hoover’s/Government Policies
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Government policies did little to halt the
downward spiral of the economy
Congress passed a very high tariff in 1930 that
further hurt the economy by depressing
international trade
Other countries could not sell their goods in US
markets, and they in turn could not buy US
goods.
In reaction to our policy, other countries
imposed their own trade barriers which made
the world wide depression worse
And still Hoover told the American people that
“prosperity is just around the corner”