Transcript The Great Crash

Problems w/ the Banking Industry
“Bank Runs”
• https://www.youtube.com/watch?v=iPkJH6BT7dM
“The Great Crash”
Three long-term causes:
(1) Interest rates were low throughout the
1920’s
(2) “Buying on the margin” or
borrowing to invest
– “The butcher, the
baker, and the
candlestick maker” …
all were invested in the
marketplace
(3) Over-valued
stocks &
“the bubble”
“The Great Crash”
• “Black Tuesday,” Oct.
29, 1929
– Panic in Selling of
stocks
Weakens Economy in Two Ways:
(1) Banks invested in the stock market,
lost $$$$
(2) Weakens credit …
Causes of the Great Depression
• (1) Uneven distribution of
wealth (drop in consumer spending)
– Leads to
• (4) Low interest rates
• (2) Falling Demand
• (3) Overproduction
- Leads to
– Leads to
• (5) Stock market
speculation
Deflation
• (6) High tariffs
Unemployment
Hoover vs.
Hitler’s
Response to
the Depression
• What do you
notice in the
chart?
(1). The causes of the Dust Bowl include all
of the following _________________.
– A. Farmers over-plowed the Great Plains, hoping
for increased profits
– B. Warm weather and drought conditions loosen
the top soil
– C. Crop prices dropped, so farmers let their fields
go fallow
– D. Answer “A,” “B,” and “C” are correct
– E. Answer “A” and “B” are correct
Dust Bowl
- “Black Sunday,” April 14,
1935 …
- Causes of the storms
(2). Overproduction in farm products and
consumer goods, such as refrigerators, cars,
radios, etc. eventually led to deflation because
_________________.
– A. When there was too much supply the prices of
goods fell
– B. After the prices of goods were reduced, owners
produced more goods
– C. After the prices of goods were reduced, owners
fired workers to reduce costs
– D. The farm and business products created during the
1920’s were not valuable, which is why the prices of
those goods dropped
– E. Answers “A” and “B” are correct
– F. Answers “A” and “C” are correct
– G. Answers “B” and “D” are correct
Deflation
(3). A major problem during the Great
Depression was pervasive nation-wide deflation,
which can best be explained as
_________________.
– A. An increase in prices
– B. A decrease in the value of the dollar
– C. A drop in consumer spending
– D. A decrease in the amount of goods
– E. The reduction in prices, wages, and the overall
economy
(4). In the summer of 1919, race riots occur in many
major cities in the North because _____________.
– A. The Great Migration occurred, that is, more than
500,000 African Americans moved out of the South
during WWI to the Northeast and Midwest in search
of better jobs and opportunities
– B. Soldiers that had fought in WWI, largely white
American males, returned to their home cities and
towns now looking for jobs, and combined with the
African Americans that had moved to many Northern
cities during the war, this created tense race relations
– C. African Americans had protested in many Northern
cities desiring the right to vote, which only further
intensified race relations
(5). The 1920’s were economically prosperous
for many reasons, including the new employer
practice of “welfare capitalism,” which referred
to _____________.
– A. Increasing the wages of employees, while also
reducing the number of hours worked
– B. A workplace environment in which the
employees were not required to belong to a union
– C. Offering workers the opportunity to buy stock,
participate in profit sharing, and receive medical
benefits and pensions
(6). The best explanation of the Dawes Plan is
the following: ________________.
– A. German banks provided loans to the
government of Austria-Hungary, so it could pay off
Serbia for all of the damage during WWI
– B. American banks provided loans to the
government of Germany, so it could pay off France
and Great Britain, as compensation for damage
during WWI and then Great Britain and France
used this money to pay back the United States
– C. This was a plan to cancel all WWI debts,
because Senator Henry Dawes believed the
massive WWI debts would eventually lead to
another world war
(7). The best explanation of the Teapot Dome
Scandal is the following: ________________.
– A. Charles Forbes, the Secretary of Veterans
Affairs, sold hospital supplies from VA Hospitals
around the country and he kept the profits in his
teapot
– B. Harry Daugherty, the Attorney General,
received bribes from other countries and
businesses for favorable treatment by the United
States
– C. Albert Fall, the Secretary of the Interior, secretly
sold oil allocated for the U.S. Navy’s strategic
reserve in Wyoming as a result made almost ½ a
million dollars from the sales
(8). By 1927, Americans purchased 75% of
household goods on credit. The best
explanation for this is the following:
________________.
– A. Americans purchased good on the installment
plan, putting down only a small amount of the
total cost of the good and then making monthly
payments
– B. Because of the uneven distribution wealth, the
middle class did not have enough income to
purchase goods with cash, leading to
underconsumption in the economy
– C. The wealthy were greedy, as they have always
been since the beginning of time
Income Inequality Today
• By 1929, the wealthiest 1% earned the same amount
of money as the bottom 42% of the economy.
(9). During the 1920’s, farmers made up
__________ % of the American workforce.
– A. 1/3
– B. 1/10
– C. 1/2
– D. 1/4
(10). The Republicans Party, led by presidents
Warren Harding and Calvin Coolidge during
much of the 1920’s, displayed confidence due to
__________ all increasing during the majority of
the decade.
– A. Unemployment, bankruptcies, and consumer
spending
– B. Consumer consumption, stock market values,
and the economy in general
– C. Foreclosures of farms, consumer debt, and the
economy in general
Economic
Problems in
Europe and
Political
Responses
** Various forms of
Keynesian
Economics …
** Cutting taxes,
increased govt.
spending …
** Responses of
U.S.S.R., France, and
Great Britain …
Keynesian Economics
• Recessions
can be caused
a drop in
aggregate
demand.
• Definition: governments should engage in
“short-term deficit spending, generating
economic growth.”
Causes that Supported Failure of “Weimar
Republic (1918-1933)” and Rise of Hitler
• Economic Instability
Hyperinflation
Hyperinflation
Economic Instability
• The Weimar Republic has a difficult time paying the war
loan, so it prints more money, too much money.
• The German “Mark” and the Dollar, 1914 – 1923
Date
– July, 1914
– January, 1919
– January, 1920
– July, 1921
– January, 1922
– January, 1923
– August, 1923
– September, 1923
– November, 1923
Exchange rate, $1 = ___ Marks
4.2 marks
8.9
64.8
76.7
493.2
17,972.0
4,620,455.0
98,860,000.0
4,200,000,000,000.0 marks
“Dawes Plan”
United States
France &
Great
Britain
Germany
How does Hitler
become Dictator of
Germany?
• “From each according to his ability,
to each according to his need”
– Karl Marx, Communist Manifesto
• January of 1933, Hitler is named
Chancellor
• Feb. 27, 1933, burning of the
Reichstag, legislative building
• Enabling Act of 1933, Hitler
becomes dictator
Germany Responds Economically to
the Depression…
• 1933 – Germany begins
the “Autobahn”
• 1934 – Hitler initiates
build-up of military
Hoover Responds to the Great Depression
• Conventional economic
thought …
• Hoover Dam (1931 – ‘36)
benefits …
– Water supply
– Hydro-electric power
– Flood control
• Reconstruction Finance
Corporation (1932) …
– $2 Billion to banks, companies,
railroads, etc.
• Emergency Relief Act
(1932) …
– $$$ to states for public
works projects
Hoover Responds to the Great Depression
• By 1932, unemployment
is at 24% …
• Bonus Army (1932) …
– 40,000 war veterans
want their promised
bonus
– U.S. Army evicts veterans
from Washington D.C.