Crash!! How the Great Depression Began
The Roaring 20’s • The new concept of “credit” • People were buying: • Automobiles • Appliances • Clothes • Fun times reigned • Dancing • Flappers • Drinking
So what was so bad? • Credit system • People didn’t really have the money they were spending • WWI • The U.S. was a major credit loaner to other nations in need • Many of these nations could not pay us back
The Stock Market • People bought stocks on margins • If a stock is $100 you can pay $10 now and the rest later when the stock rose • If Stocks fall • Now the person has less than $100 and no money to pay back
Unscrupulous traders bought and sold shares to intentionally inflate a company’s stock value • This gave a false sense of security/ confidence in the American market • In Oct. 1929, investors’ confidence dropped (partly because of the debate over the Smoot-Hawley Tariff) • On Thursday, Oct. 24, 1929 (Black Thursday), traders started to sell suddenly – PANIC set in! The Stock Exchange fell 11% • Over the weekend, investors worried, and the panic grew…. • On Monday, stocks fell quickly again (12%) And then….
On Black Tuesday, October 29,1929, stocks crashed immediately that morning – fell 12% MORE. Mass Consumption had already fallen amongst working and middle class Many middle class people had begun to invest on the stock market and lost everything When people could not continue to purchase, productivity cut back – leading to unemployment The more people unemployed, the less money in the system, which cut back productivity more and laid off more people…. A horrible cycle began.
What about the people? • Farmers were already feeling the effects • Prices of crops went down • Many farms foreclosed • People could not afford luxuries • Factories shut down • Businesses went out • Banks could not pay out money • People could not pay their taxes • Schools shut down due to lack of funds • Many families became homeless and had to live in shanties
President Hoover • Philosophy: We’ll make it! • What He Did: Nothing from the Government, but • he persuaded bankers/business to follow his policy of VOLUNTARY NON - COERCIVE COOPERATION where he gave tax breaks in return for private sector economic investment • Hoover also organized some private relief agencies for the unemployed • he started the HOOVER MORATORIUM - put a temporary stop to war debt & reparations payments • Wanted European countries to purchase US goods with the money they saved from payments
Measures were successful into 1930 BUT, in June 1930, Congress passed the Smoot-Hawley Tariff Act: Raised tariffs on over 20,000 imported goods to record levels (up to 60%) this turned out to be a fatal error... Congress did not understand that the world had become a GLOBAL ECONOMY in retaliation, other countries passed high tariffs and no foreign markets purchased American goods
International Repercussions As Hoover becomes increasingly unpopular… in 1931, the Soviets flooded the world market with cheap wheat (1/2 U.S. price) in an attempt to get money to pay back Austrian banks (but price was too low and they couldn't) this resulted in the BANKERS’ PANIC Austrian banks had borrowed from German banks and German banks had borrowed from Americans No one could pay back anyone, and Americans who had money saved in the banks (they thought, safely), lost everything.
people were frustrated - isolated protest movements began: Dairy farmers frustrated w/low price of milk refuse to sell (dump it) WW1 veterans’ pensions were discontinued by congress – So they marched on Washington in 1931: The BONUS ARMY After one year of occupation in their tent city, Hoover ordered them forcibly dispersed by the Army (MacArthur)
The tent cities and shanty-towns that cropped up around the country took a cue from the Bonus Army and called themselves Hoovervilles: