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The Great Depression 1929-1933 Causes • Bank Failures • Business Failures • Unemployment • Income & Spending • Stock Market Speculation Bank Failures • Banks had invested in the Stock Market – Couldn’t get the money they invested in the stock market back after “Black Tuesday”. – 600 closed – 11,000 of 25,000 failed by 1933 Bank failures 4 3.5 3 2.5 2 Bank Failures 1.5 1 0.5 0 1929 1931 1933 Business Failures Key industries were barely making a profit -Railroads -Textiles -Steel -Mining -Lumbering -Coal Mining Boom industries of the 1920’s were weakening -automobiles -construction -consumer goods Business failures 35 30 25 20 Business failures 15 10 5 0 1929 1931 1933 Business Failures Today “Trickle Down Effect” • New housing starts were down Unemployment • Trickle down effect would eventually effect employment. Unemployment in the 1920’s • 2,132,000 unemployed • Unemployment 5.2% 14 12 10 8 unemployed 6 4 2 0 1928 1931 Unemployment today Income & Spending • Americans of the 1920’s were living on credit • Businesses were actually encouraging Americans to pile-up debt Results of buying on credit • Unfortunately many Americans had trouble paying off their growing debts. • Faced with debt, consumers cut back on spending • Businesses suffered • The nation’s economy also suffered • Today: Uneven Distribution of Income • The rich got richer • The poor got poorer 75% 9% Annual Income • 70% of nation’s families – $2,500/year ($2,500 was considered the poverty line) • Today: Consumer Spending • Some families earning 2X more than $2,500 could not afford household goods being produced • Result: many products went unpurchased • Businesses were left with unsold products Stock Market Speculation • People were engaging in “speculation” Bought stocks and bonds on the chance of a quick profit Many ignoring the risk The Reality of the Stock Market • Buying on margin-buying on credit Paying only a down payment for the stocks you wanted and borrowing the rest If stock price fell many could not pay the outstanding amount owed Typical Stock • Today BLACK TUESDAY • October 29, 1929- stock prices fell and investors raced to get their money out of the market • Many were unsuccessful at getting out without huge losses • Some investors lost their life savings Worldwide Effects • Europe gripped by Depression also • Europeans can’t pay back their American debts (Germany) • Europeans can’t buy American farm products or consumer goods • Americans are forced to place high taxes on imported goods (Hawley-Smoot Tarrif) Hoover struggles with the Depression • Hoover believed that Americans could help themselves through the Depression • “Rugged individualism”-people should succeed through their own efforts Cautious Steps • “Any Any lack of confidence in the economic future… future…is foolish.” foolish.” -Herbert Hoover • brought together key leaders in business, banking, and industry to find solutions to economic problems Employers • Asked to NOT lower wages • Asked to NOT lay-off workers Labor Unions • Asked to NOT Demand Higher wages • Asked to NOT go on strike Charities • Hoover created an organization to help private charities generate contributions for the poor Results of Hoover’s Cautiousness • • • • • Shanty Towns-(Hooverville) Shrinking economy High unemployment (and rising) Business and Bank failures Soup kitchens and bread lines more common • Hoboes continued to roam the nation Projects approved by Hoover • Boulder Dam-generates electricity and provides water for cities like Las Vegas and Los Angeles “Mellon pulled the whistle Hoover rang the bell Wall Street gave the signal And the country went to hell.” Hoover forced to action • Depression deepens Hoover’s programs Federal Farm Board-organization of farm cooperatives -raise crop prices National Credit Corporation-loaned money to banks -to stave off bankruptcy More Hoover programs Federal Home Loan Bank Actlowered mortgages and allowed farmers to refinance -fewer foreclosures Glass-Steagall Banking ActSeparated investment banking and commercial banking -to prevent another crash Still More Hoover programs • Reconstruction Finance Corporationemergency financing for banks, life insurance companies, railroads, and other large businesses ($2 billion) -trickle down to average citizens through job growth and higher wages Indirect Intervention by Hoover Hoover encouraged cities and charitable organizations to have: Bread lines Soup lines Direct relief Footnote or Endnote (1) G. Wayne Miller, King of Hearts: The True Story of the Maverick Who Pioneered Open Heart Surgery (New York: Times, 2000) 245 Bibliography Miller, G. Wayne. King of Hearts: The True Story of the Maverick Who Pioneered Open Heart Surgery. New York: Times, 2000. Comparing Footnotes/Endnotes and a Bibliography (1) G. Wayne Miller, King of Hearts: The True Story of the Maverick Who Pioneered Open Heart Surgery (New York: Times, 2000) 245. Miller, G. Wayne. King of Hearts: The True Story of the Maverick Who Pioneered Open Heart Surgery. New York: Times, 2000.