Unit VIII – Boom Times and Challenges

1. Unit VIII – Boom Times and Challenges Chapter 25 – The Great Depression Section 1 – The End of Prosperity

2. The End of Prosperity • The Big Idea • The collapse of the stock market in 1929 helped lead to the start of the Great Depression. • Main Ideas • The U.S. stock market crashed in 1929. • The economy collapsed after the stock market crash. • Many Americans were dissatisfied with Hoover’s reaction to economic conditions. • Roosevelt defeated Hoover in the election of 1932.

4. Strong Economy Between 1922 and 1928 the U.S. gross national product, or total value of all goods and services, rose 40 percent. Though farmers and some other workers didn’t benefit, the overall economy performed well, especially for automakers and those who made auto parts. 1 on 5 Americans owned a car in 1929 Corporation profits were on the rise. Overall unemployment remained low, averaging around five percent between 1923 and 1929. Union membership slowed as employers expanded welfare capitalism programs, or employee benefits. This feeling of prosperity encouraged workers to buy new products and enjoy leisure activities such as movies. Strong Stock Market The stock market, where people buy stocks, or shares, in companies, performed very well in the 1920s, with stock values sharply increasing each month. The value of stocks traded quadrupled over nine years. The steep rise in stock prices made people think the market would never drop, and more ordinary Americans bought stocks than ever before. This encouraged moreinvestors, who borrowed more money(on margin),which increased the number of shares traded and caused the price of stock to go up. The number of shares traded rose from 318 million in 1920 to over 1 billion in 1929. Business leaders said everyone could get rich from stocks. The Appearance of Prosperity

6. Main Idea 1: The U.S. stock market crashed in 1929. • 1920s stock market was a bull market, or one with rising stock values. • Many people began to buy stocks. • Some who could not afford the stocks’ full price began buying on margin, or purchasing stocks on credit. • Few considered what might happen if the bull market turned into a bear market, or one with declining stock prices. • Stock prices peaked in the summer of 1929. • Prices started to drop. • Frightened investors rushed to sell their stocks in order to pay off their loans.

7. Investors increasingly used credit to buy stocks as the market rose. The Federal Reserve Buying on Margin Credit and the Stock Market

8. Black Tuesday • In September 1929, total value of all stocks was $87 billion. • On Thursday, October 24, panic hit the stock market. • Within three hours the market lost $11 billion in value. • On Monday, October 28, prices dropped again. • On Tuesday, October 29, the stock market crashed. • So many people wanted to sell their stocks, and so few wanted to buy, that stock prices collapsed. • Became known as Black Tuesday • By November 1929, $30 billion in stock value had disappeared.

11. The Stock Market Crashes • Identify – By what name did the day the stock market crashed become known? • Recall – When the market crashed, what did most stockholders want to do with their stocks. • Evaluate – If you owned stock, which type of market would you want, bull or bear? Why?

12. Main Idea 2: The economy collapsed after the stock market crash. • Banking crises after the stock market crash • In 1929 banks had little cash on hand and were vulnerable to “runs,” or a string of nervous depositors withdrawing money. • A run could quickly drain a bank of all its cash and force its closure. • Public panic followed • Effects on business • Unemployment soared to more than 4 million workers.

13. Causes of the Great Depression • Business cycle – • Government’s monetary policy- Federal Reserve and Money system • Overproduction– American businesses were producing far more goods than people were consuming. • Uneven distribution of wealth– millions of Americans did not earn enough to afford expensive new products. • Declining world trade– Europe, still recovering from the war, could not afford to buy American goods or to pay the high tariffs required to sell their own goods in the United States.

14. Other Causes of the Great Depression 1) The Stock Market Crash of 1929- a trigger. 2) Speculation in Stock Market- buying on margin and cheap money 3) Banking crisis. 4) Republican Party 5) Lack of diversification. 6) Post war deflationary procedures. 7) The Credit structure.

16. Effects of the Crash Effects Individuals Cause Stock Market Crash

17. Effects of the Crash • Effects on Individuals • Investors ruined, huge fortunes disappeared • Margin buyers- had to pay back the margin call to brokers and sold for less then they paid. Causing loss of savings and still owed money.

18. Effects of the Crash Effects Individuals Cause Banks Stock Market Crash

19. Effects of the Crash • Effects on Banks- crash triggered a bank crisis • Not all Americans invested but most all had money in savings. • Runs on the banks to get deposits out- Hundreds of banks failed. • By 1933- bank failures wiped out billions of dollars of savings, add this to the crash and things got worse. • Banks had no deposit insurance and little cash on hand. • Banks had made investments themselves in the stockmarket- these are now losses • Loans to stockbrokers became losses.

20. Effects of the Crash Effects Individuals Cause Banks Stock Market Crash Business

21. Effects of the Crash • Effects on Business- • money scarce, banks and investors unwilling or unable to provide the money for business to grow and expand. • Consumers cut back spending and companies began to lay off workers. • Unemployed workers make less money, less purchases and companies again lay off. • Wages dropped by over $4 Billion. Consumers stopped spending.

22. Effects of the Crash Effects Individuals Cause Banks Stock Market Crash Business Overseas

23. Effects of the Crash • Effects overseas- began in U.S. but rippled over seas. • U.S. banks called in loans to foreign countries crippled from WWI. • Foreign countries exported less to U.S. due to low buying power there. And foreign companies began to lay off workers. • Governments around the world raised the tariffs on imports to protect their industries.

24. The Economy Collapses • Recall – What two things caused banks to close? • Explain – How did people lose their life savings? • Identify Cause and Effect – How did the stock market crash affect banks and businesses?

25. Development of the Great Depression • Farm Failures • Unemployment reduced American’s ability to buy food and people went hungry • Farmers overproduced, surpluses went up and prices went down. • Lower prices means lower income for farmers. • Farmers borrowed for land and equipment, now were unable to repay loans. • 1933- over 364,000 foreclosures-Foreclosure occurs when a lender takes over ownership of a property from an owner who has failed to make loan payments.

28. The Economy Collapses • Recall – What was the national employment rate before and after the stock market crash? • Identify – What percentage of Americans earned 1/3rd of all income? • Elaborate – How did World War I affect the American economy?

29. What did Hoover do? • Traditional Approach to a depression-Cut Government Spending and let the Depression burn it self out- this will get rid of the rottenness in the system. • Hoover did not sit still • He called on states, cities, and all private charitites to feed the hungry. Resisted giving direct assistance to individuals Brought business and labor leaders together. • Cut his own salary by 1/5th • Cut taxes- did little good • Public works jobs- CreatedReconstruction Finance Corporationthat loaned $1.2 billion to financial institutions

30. Nation’s Response to Hoover • Losing favor • Hoover was optimistic- but the worst was yet to come. • He still refused direct aid. • But he did give aid to banks and businesses but not individuals. • Bonus Army- 15,000 set up camp • 1932- WWI Veterans march on Washington to demand their bonus $1.25 for each day overseas- to be paid in 1945 • They need the money now • Hoover sent out the troops to clear them out- Violence • Voter Reaction- 1930 Republicans began to lose seats in Congress.

31. Hoovervilles "Hoovervilles" sprang up across America in the 1930s. They took their name from President Herbert Hoover who was in office when the Great Depression began. "Hoovervilles" were clusters of shacks where destitute people had to live. They were made up of packing crates, abandoned cars, and other cast off scrap. They were shanty towns that were located outside of major cities.

32. The true measure of the Great Depression’s disaster lies in how it affected the American people. Hoboes • Hoboes were mostly men, but included teens and women. • Boarding trains was hard and illegal, and railroads hired guards to chase hoboes away. • Finding food was a constant challenge, because people had little to spare and rarely shared with hoboes. • Hoboes developed a system of sign language to warn of possible dangers or opportunities. Hoovervilles • Thousand applied for a handful of jobs, and job loss resulted in poverty for most Americans. • To survive, people begged door to door, relied on soup kitchens and bread lines. Some went hungry. • Some who lost their homes lived in shantytowns, or Hoovervilles, named after President Hoover who many blamed for the Great Depression. The Human Impact of the Great Depression

33. Hoover’s Reaction • Identify – What groups did Hoover believe should give assistance to the poor? • Explain – How did government programs give assistance to the nation under Hoover? • Elaborate – What would you have done differently about the Bonus Army encampments?

34. The Election of 1932 • Americans blamed President Hoover for the country’s economic woes. • Franklin Delano Roosevelt won the Democratic Party’s nomination. • He was related to Theodore Roosevelt. • He survived polio. • He was governor of New York. • Roosevelt promised relief for the poor and more public works programs to provide jobs. He attacked Hoover and the Republicans for their response to the Great Depression. • Roosevelt won a landslide victory—winning more than 57 percent of the popular vote.

36. The Election of 1932 • What were the key events of the presidential election of 1932? • Recall- What government jobs did Roosevelt hold before running for president? • Explain- How did Roosevelt plan to turn the economy around? • Evaluate- Do you think as a presidential candidate, Roosevelt should have clearly described his plans to end the Depression?

37. Election of 1932 • Recall – Which two candidates ran in the 1932 presidential election? • Rate – Which party’s idea about aid to needy Americans would work best?