Download Chapter 21: Great Depression Section 1: Cause of the great

CHAPTER 21: GREAT DEPRESSION
SECTION 1: CAUSE OF THE GREAT
DEPRESSION
US 2
1920’S PROSPERITY
• During the 1920’s the US economy skyrocketed and people
credited Republican Presidents Warren Harding and Calvin
Coolidge
• Coolidge decided not to run for reelection in 1928 opening the door
for Herbert Hoover who had been Sec of Commerce under both
Harding and Coolidge
• Hoover’s solid record of accomplishments led him to an easy
victory over Democrat Alfred Smith of NY who chose Franklin D
Roosevelt as his VP candidate
• Hoover claimed that he would end poverty in the US, little did he
know that an economic disaster was on the horizon
1920’S TROUBLE
•
Farmers made up 1/4 th of the US workforce, they had increased production for
the war and never recovered from the loans they needed to buy better equipment
in order to produce such large quantities of food
•
Throughout the 1920’s crop prices remained low due to massive surpluses and a
rural depression had been a way of life while the rest of the country thrived
•
Industrial workers did see improvements in the 1920’s with raises averaging 8%,
but that was nothing compared to corporate profits being up 65%
•
The rich got richer while the poor stayed poor, the wealthiest 1% earned the
same amount as the bottom 42%
•
To make matters worse, Americans had changed their opinion of credit and most
used loans to buy cars, radios and even stocks
WHY WAS THIS 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
• Stocks fall
• Now the person has less
than $100 and no money
to pay back
•
AND THEN….
As people panicked about their money, investors tried to
sell their stocks
• This led to more selling and a rapid decline in prices
• Many stocks were now worthless
• People who had bought on
“margins” could not pay back the
money borrowed to purchase
stocks
• Most investors were average
people that were now broke
STOCK MARKET CRASHES
• Because stocks were being bought with credit, prices were inflated,
many investors looked to make quick money and sell (Stock
Speculation)
• Stocks began to slide in Sept of 1929, by Oct investors began to
lose confidence they would recover…this lack of confidence
caused the Market to crash
• October 29, 1929 is known as Black Tuesday: in one day 16
million shares were sold and billions of dollars were lost
• Hoover tried to tell Americans the market would recover, but it
continued to fall into November and the boom of the 1920’s was
over
THE GREAT DEPRESSION BEGINS
• With confidence in the US economy at a new low, investors withdrew their
savings from banks
• when banks ran out of cash they were forced to close and investors who
hadn't withdrawn funds lost everything (No FDIC)
• The fear often led to “Runs on the bank” by panicked depositors hoping to
get their money out before banks closed
• From 1929-193, there was a steady closing of banks across the country, over
500 closings by 1932, some wondered if the banking system would survive
at all
• With peoples life savings gone, they could not purchase goods, which
caused businesses to produce less, with that lesser production came fewer
jobs (Snowball effect)
• By 1933, between 25%-33% of Americans had lost their jobs
•
Farmers were already feeling the effects
• Prices of crops went down
• Many farms foreclosed
•
People could not afford luxuries
• Factories shut down
• Businesses closed
•
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
• Herbert Hoover was
president at the start
• Philosophy: We’ll make it!
• What He Did: Nothing
• The poor were looking for
help and no ideas on how to
correct or help were coming
• When he finally began to
see a problem, it was “Too
little, too late”
DEPRESSION GOES GLOBAL
PAGE 707-708
1.What was the Hawley-Smoot Tariff? What
was its intention and what did it actually
do?
2.What other European problems helped the
Depression become a worldwide problem?
3.What was the effect of Germany refusing to
make war reparation payments?
CAUSES OF THE GREAT DEPRESSION
• Some historians believe the Stock Market Crash and bank failures simply left
too little money in circulation for the economy to function
• John Maynard Keynes disagrees, he blames the lack of government
intervention in the economy, meaning when the economy began to collapse
the government should have stepped in and provided more money to
circulation to ease the pain of the economic collapse
• Keynes would also argue that the US government should have stepped in to
stop the uneven distribution of wealth, stock speculation and production of
goods throughout the 1920’s.
• Historians do not disagree however on the fact that those factors combined
with poor decisions by Congress and the President ultimately led to the worst
economic disaster in the nations history