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The Wall Street Crash and the Great Depression The Wall Street Crash of 1929 and the Great Depression 1. The Roaring Twenties and the Wall Street Crash The period that followed the end of the First World War was a prosperous one for most Americans and many called it the “Roaring Twenties”. When Herbert Hoover became President in March 1929, the economy was still booming. Hoover promised a continuation of the boom and “a chicken in every pot” for each American family. As the economy grew, stocks prices soared. By the end of the decade, as many as 25 million Americans had placed money in the stock market. People did not need a lot of cash to invest in the stock exchange. Many bought stocks on margin. This meant they borrowed the money to buy stocks using the value of the stock itself as collateral. By 1929, the total amount of debt amassed by this practice had reached six billion dollars. However, there were serious problems with the American economy. Prosperity depended on people continuing to spend but many had large debts or had already bought the consumer goods they needed. Wealth was distributed unequally as rising profits were not passed on to workers so most people were too poor to share more. This meant demand did not rise as fast as production. This led to overproduction, which meant industry was producing more than people wanted to buy. Barriers to trade in place between the USA and Europe combined with economic problems meant that Europe was not in a position to provide a good market for America’s surplus goods either. By 1929, unsold stock was building up so manufacturers reduced production. As they began to lay off staff, unemployment increased. In September, some investors began to worry about prices and warned that a crash would happen at some time. Some people started selling their shares, but during September the stock market recovered: the banks helped to restore stability by buying up vast numbers of stocks. Then came Black Thursday - October 24 1929 - when a drop in stock prices triggered a burst of panicselling so frantic that it overwhelmed the Stock Exchange’s ability to keep track of the transactions. Wall Street financers were able to reverse the downward plunge only by buying as many shares of stock as they could over the next two days. It was a temporary victory. Monday’s opening bell unleashed a frenzy of selling that soon turned into an uncontrolled panic which continued for the rest of the trading day. The following day - Black Tuesday, October 29 1929 saw the previous day’s panic turn into chaos on the trading floor. 1 The Wall Street Crash and the Great Depression The effects of the Wall Street crash were dramatic. Investors lost heavily, in many cases they were unable to repay the brokers who had provided them with expensive loans to buy shares. Smaller investors had often borrowed money using their homes as security, so the banks repossessed their homes and evicted them. Some investors even committed suicide, the situation was so desperate. Many companies went bankrupt in the period from 1929 to 1933 and some banks went out of business as they could not repay their investors. Unemployment rose to 12 million by 1932. As more people lost their jobs, sales fell and therefore more people became unemployed. A vicious circle began and this led to the period in America that became known as the Great Depression. KEY CONCEPTS Buying on margin - The purchase of an asset by paying the margin and borrowing the balance from a bank or broker. Buying on margin refers to the initial or down payment made to the broker for the asset being purchased. Black Thursday, October 24 1929 - It signalled the start of the Wall Street Crash in 1929. Black Thursday was the first large fall in share prices. It was compounded by huge falls, a couple of days later, on Monday 28 and Tuesday 29. On Black Thursday 2.894 million shares of stock were sold in one day, most at prices far below their values of only a few days earlier. On Black Tuesday approximately 16,410,000 shares, a record number, were sold. America’s economy steadily moved into the Great Depression, the worst economic crisis in U.S. history. MEANING OF … BOOM (VERB): to increase and be very successful (prosperare, essere in grande crescita). STOCK: a share in a company or the proprietorship element in a corporation usually divided into shares (titolo, azione). SOAR: to increase quickly to a high level (alzarsi, salire alle stelle). STOCK MARKET-STOCK EXCHANGE: the place where stocks and shares are bought and sold or the business of buying and selling stocks and shares (borsa). COLLATERAL: property or other goods that you promise to give someone if you cannot pay the money they lend you (garanzia). WEALTH: a large amount of money, property etc that a person or country owns (ricchezza). SHARE MORE (VERB): to be unable to buy many goods due to lack of money (condividere di più, aggiungere altro, mettercene ancora). SHARE (NOUN): one of the equal part into which the ownership of a company is divided (azione). RECOVER: to return to a normal condition after a period of trouble or difficulty (riprendersi, recuperare). DROP: a reduction in the amount, level or number of something, especially a large or sudden one (caduta). TRIGGER: to make something happen very quickly, especially a series of events (scatenare, innescare, dare il via). BURST: a sudden outbreak of something, for example feelings or emotions (scoppio, esplosione). FRANTIC: extremely hurried and using a lot of energy, but not very organized (frenetico, agitato, convulso). OVERWHELM: a work or a problem that become too much or too difficult to deal with (annientare, distruggere, sopraffare). 2 The Wall Street Crash and the Great Depression DOWNWARD PLUNGE: a sudden large decrease in the price, value etc of something (drammatica caduta libera). UNLEASH: to suddenly let a strong force , feeling etc have its full effect (scatenare, provocare). FRENZY: a state of great anxiety or excitement in which you cannot control your behaviour (foga, frenesia). TRADING FLOOR: the place where stocks and shares are bought and sold (borsa, piazza affari). PROVIDE (SOMEONE WITH): to give something to someone or make it available to them, because they need it or want it (fornire, concedere, dare). LOAN: an amount of money that you borrow from a bank etc (prestito). EVICT: to tell someone legally that they must leave the house they are living in (sfrattare). SALES: the total number of produts that are sold during a particular period of time (vendite). PHRASAL V ERBS PASS ON: to give or to distribute something to someone (distribuire, estendere). BUILD UP: to increase gradually, to become bigger or greater (crescere, estendersi, svilupparsi). LAY OFF: to stop employing someone because there is no work for them to do (licenziare). BUY UP: to quickly buy as much of something as possible (comprerare in blocco). GO OUT OF BUSINESS: stop doing business because of financial problems (fallire, andare in bancarotta). 2. The Great Depression For people in the United States, the 1930s was the age of the Great Depression. In 1932, many businesses failed as a result of the Wall Street Crash and many banks also collapsed. The price of goods continued to fall and industrial production was cut. Wages fell and workers were made unemployed. President Hoover began to take some action. In 1930, he cut taxes and in 1931, he gave money to the state to help build infrastructures such as the Hoover Dam, in order to provide work. In 1932, he agreed to an Emergency Relief and Reconstruction Act which offered money to states that wished to help the unemployed. In May 1932, veteran soldiers tried to persuade Hoover to pay their war pensions early. Many of the war veterans had been out of work since the beginning of the Great Depression. The World War Adjusted Compensation Act of 1924 had awarded them bonuses in the form of certificates they could not redeem until 1945. Each service certificate, issued to a qualified veteran soldier, bore a face value equal to the soldier’s promised payment plus compound interest. Between 15-20,000 veterans called the “Bonus Army” marched to Washington and built a Hooverville, a shanty town of homes made from cardboard, outside the White House. The principal demand of the Bonus Army was the immediate cash payment of their certificates. 3 The Wall Street Crash and the Great Depression On July 28, 1932, Hoover ordered the army to drive out the demonstrators and break up the encampment. A riot followed and two veterans were shot and died. By 1933 about 25 percent of the American workforce was unemployed. Farm product prices fell dramatically and it was costing farmers more to harvest and transport their produce than they could make by selling it. Between 1931 and 1938, four separate droughts also hit the area of the Great Plains. This combined with poor agricultural practices - no crop rotation, fallow fields and overploughing - left few areas with natural buffalo grass. In 1932, dust storms began and windstorms stripped the topsoil from millions of acres which turned the whole area into a vast dust bowl and destroyed crops and livestock in unprecedented amounts. As a result, by 1940, approximately 2.5 million people had left the plains. About 200,000 went to California and the others went to nearby cities such as Texas or Dallas and Unemployed workers looking for a job other areas on the Western Coast. Migrant farm labourers and many others were unable to keep up mortgage payments and so were evicted from their farms. Without unemployment benefit, many people relied on soup kitchens and charity handouts. They lived in Hoovervilles. Although conditions began to improve by the mid-1930s, total recovery was not accomplished until the end of the decade. KEY CONCEPTS Emergency Relief and Reconstruction Act (1932) - The United States’s first major-relief legislation, enabled under Herbert Hoover and later adopted and expanded by Franklin D. Roosevelt as part of his New Deal. It was an amendment to the Reconstruction Finance Corporation Act (1932). It created the Reconstruction Finance Corporation which released funds for public works projects across the country. World War Adjusted Compensation Act (1924) - A United States federal law that granted a benefit to veterans of American military service in World War I. Compound interest - Interest that is calculated on both the sum of money lent or borrowed and the the unpaid interest already earned or charged. Dust bowl - An area of land that has been turned into desert through lack of rain or too much farming. MEANING OF … TAKE ACTION: the process of doing something, especially in order to achieve a particular thing (fare qualcosa, agire). DAM: a special wall built across a river or stream to stop the water from flowing, especially in order to make a lake or produce electricity (diga). PROVIDE: to give something to someone or make it available to them, because they need it or want it (fornire, procurare). 4 The Wall Street Crash and the Great Depression AGREE (TO): to say yes to an idea, plan, suggestion (acconsentire). AWARD: to officially give someone something such as a prize or money to reward them for something they have done (assegnare, riconoscere). REDEEM: to exchange a piece of paper representing an amount of money for that amount of money or for goods equal in cost to that amount of money (riscattare). ISSUE: to give things such as documents or equipment to people who need them (assegnare, distribuire). SHANTY TOWN: a very poor area in or near a town where people live in small houses made from thin sheets of wood or other material (baraccopoli). CARDBOARD: stiff thick paper, used especially for making boxes (cartone). ENCAMPMENT: a large temporary camp, especially of soldiers (accampamento). RIOT: a situation in which a large crowd of people are behaving in a violent and uncontrolled way, especially when they are protesting about something (sommossa, rivolta, tumulto). HARVEST: to gather crops from the fields (raccogliere, mietere). PRODUCE: food or other things that have been grown or produced on a farm to be sold (produzione agricola). DROUGHT: a long period of dry weather when there is not enough water for plants and animal to live (siccità). FALLOW FIELD: a land dug or ploughed but not used for growing crops (campo incolto, a maggese). OVERPLOUGHING: the practice to plough intensively (aratura intensiva). WINDSTORM: a period of bad weather with strong winds but not much rain (tempesta). STRIP: to remove something that is covering the surface of something else (rimuovere, togliere). TOPSOIL: the upper level of soil in which most plants have their roots (terreno, strato superficiale). CROP: a plant such as wheat, rice or fruit that is grown by farmers and used as food (coltivazione, coltura). LIVESTOCK: animals such as cows or sheep that are kept on a farm (bestiame). NEARBY: not far away (limitrofo, vicino). MORTGAGE: a legal arrangement by which you borrow money from a bank or similar organization in order to to buy a house, and pay back the money over a period of years (mutuo). EVICT (FROM): to tell someone legally that they must leave the house they are living in (sfrattare). RELY (ON): to depend on something in order to continue to live or exist (dipendere da, dover fare affidamento su qualcosa o qualcuno). SOUP KITCHEN: a place where people with no money and no homes can get free food (mensa per i poveri, cucina benefica). HANDOUT: money or goods that are given to someone, for example because they are poor (sussidio). ACCOMPLISH: to succeed in doing something, especially after trying very hard (raggiungere, compiere). PHRASAL V ERBS DRIVE OUT: to force someone or something to leave (cacciare via, allontanare, disperdere). BREAK UP: to make people leave a place where they have been meeting or protesting (cacciare, disperdere). KEEP UP: to continue doing something (continuare, portare avanti). 5 The Wall Street Crash and the Great Depression 3. The New Deal The Republican President, Hoover, had failed to deal with the Depression successfully. He tried to introduce measures to help the economy like tax reductions, an expansion of public works, and the Federal Home Loan Bank Act. However, his idea that people would be able to “work themselves out of poverty” without direct assistance from the government was very unpopular. When Roosevelt accepted the Democratic Party nomination for president, he promised a “New Deal” for Americans, which proved popular with the electorate. On the 4th March 1933, Roosevelt became President of the United States of America. He now had to deliver his promised New Deal to the American people. This had three main aims: 1. Relief - to help to improve the lives of people; 2. Recovery - to begin to rebuild American industry and trade; 3. Reform - to change conditions to ensure future progress. It was also important that confidence was restored in banking and finance. Roosevelt implemented a four-day “Bank Holiday” which closed the banks until they had been regulated. The Emergency Banking Relief Act gave the government strict control over the banks. Only healthy banks were allowed to reopen and the other weaker banks were reorganized under Federal supervision. The stock market was to be monitored more closely and the USA was taken off the Gold Standard. In order to win over the American people, Roosevelt gave speeches known as “fireside chats” where he asked Americans to have faith in the New Deal. He also introduced several Federal agencies (sometimes called alphabet agencies because they were known by their initials) to combat the effects of the depression. The economic programs outlined in the New Deal, were implemented in the United States between 1933 and 1936. During the first hundred days of his presidency, Roosevelt passed many laws to try and end the crisis of the Great Depression and restore American confidence. In his New Deal, Roosevelt put into practice some of the theories of the British U.S. President Franklin Delano Roosevelt Economist, John Maynard Keynes. Historians distinguish a “First New Deal” (1933) and a “Second New Deal” (1934-36). The “First New Deal” (1933) dealt with diverse groups, from banking and railroads to industry and farming, all of which demanded help for economic recovery. A “Second New Deal” (1934-36) included the Wagner Act to promote labour unions, the Works Progress Administration (WPA) relief program, the Social Security Act, and new programs to aid tenant farmers and migrant workers. The final major items of New Deal legislation were the creation of the United States Housing Authority and Farm 6 The Wall Street Crash and the Great Depression Security Administration both in 1937, plus the Fair Labour Standards Act of 1938 which set maximum hours and minimum wages for most categories of workers and the Agricultural Adjustment Act of 1938. While there was no attempt to end segregation or to increase black rights in the South, Roosevelt appointed an unprecedented number of African Americans to second-level positions in his administration; these appointees were collectively called the Black Cabinet. The African American community responded favorably, so that by 1936 the majority who voted (usually in the North) were voting for the Democrats. Some New Deal relief programs allocated a part of their budgets to blacks. At that time, social security was denied to African Americans and most unions excluded them from joining. To increase popular support for his New Deal, Roosevelt put an end to prohibition, the national ban on the sale, manufacture and transportation of alcohol which had been in place since 1920. Once the manufacture and sale of alcohol was legalized, states and cities gained additional new revenue through taxes on sales and Roosevelt secured his popularity in the cities for ending this unpopular ban. The New Deal represented a significant shift in domestic policy in the USA, its most lasting change being the increased federal government regulation of the economy. It marked the beginning of complex social programs and the growing power of labour unions. Some businessmen and the Republican Party thought the New Deal had gone too far. Roosevelt’s critics said it had made Americans too dependent on government help. Some business men were not happy about high taxation of the rich and also unions in the workplace. The Supreme Court was also against the New Deal as many judges were Republicans and they declared that several New Deal measures were unconstitutional. The effects of the New Deal remain a source of controversy and debate amongst economists and historians. KEY CONCEPTS Federal Home Loan Bank Act (1932) - A United States federal law passed under President Herbert Hoover in order to lower the cost of home ownership. Emergency Banking Relief Act (1933) - An act passed by the United States Congress in 1933 in an attempt to stabilize the economy because of the Great Depression. Following his inauguration in March 1933, President Franklin Roosevelt set out to rebuild confidence in the nation’s banking system, first declaring a four-day banking holiday that shut down the banking system, including the Federal Reserve. This act restricted banks from reopening from the banking holiday unless they had enough funds to meet their depositors demands. Reassured that banks were now safer to keep money in than before, people started to put their trust in banks again, and the bank system steadily grew. Gold Standard - An economic system in which the value of money is based on the value of gold. Prohibition - The Eighteenth Amendment to the U.S. Constitution banned the sale, manufacture and transportation of alcohol from 1920 until its repeal in 1933. Prohibition had been introduced for four basic reasons; medical, economic, social and political. People began to realize that alcohol damaged health. Many labourers got drunk and so they could not perform their jobs properly. Votes were won in rural areas because politicians promised to back prohibition, which helped those 7 The Wall Street Crash and the Great Depression politicians to win the election. Some husbands were spending their family’s saving on alcohol instead of essential items, e.g. education. Prohibition ended the legal sale of alcohol and thereby created demand for an illicit supply called Bootlegging. However, during Prohibition, people continued to produce and drink alcohol, and bootlegging helped foster a massive industry completely under the control of organized crime and drinking in speakeasies (places where you could buy and drink alcohol illegally) became increasingly popular. MEANING OF … DEAL: an agreement or arrangement, especially in business or politics, that helps both sides involved (accordo, patto, riforma, programma). PROVE: the way that a particular project is organized by a company, including which part of a project someone is going to do and when they are supposed to do it (dimostrarsi, rivelarsi). DELIVER: to do or provide the hints you are expected to, because you are responsible for them or they are part of your job (mantenere, eseguire, portare a termine, compiere). AIM: something you hope to achieve by doing something (obiettivo, scopo). RELIEF: money given by the government to help people who are poor, old, unemployed etc (soccorso, aiuto finanziario). RECOVERY: the process of returning to a normal condition after a period of trouble or difficulty (ripresa). WEAK: not financially successful (debole, fragile). FIRESIDE: the area closed to or around a small fire, especially in a home (focolare domestico). OUTLINE: to describe something in a general way, giving the main points but not the details (delineare, tracciare). TENANT FARMER: someone who farms land owned by someone else (fittavolo, contadino affittuario). ATTEMPT: an act of trying to do something, especially something difficult (tentativo). APPOINT: to choose someone for a position o a job (incaricare, designare, nominare). ALLOCATE: to use something for a particular purpose, give something to a particular person etc, especially after an official decision has been made (stanziare, assegnare, destinare). DENY: to refuse to allow someone to have or to do something (negare, non concedere, rifiutare). BAN: an official order that prevents something from being used or done (divieto, bando, proibizione). BE IN PLACE: to be in effect (essere in vigore). GAIN: to manage to achieve an increase of something (aumentare). REVENUE: money that a business or organization receives over a prior of time, especially from selling goods or services (entrate). SHIFT: a change in the way people think about something, in the way something is done etc (cambiamento). DOMESTIC POLICY: policy relating to your own country (politica interna). PHRASAL V ERBS DEAL WITH: to take the necessary action, especially in order to solve a problem (affrontare). WORK OUT: if a problem or complicate situation works out, it gradually gets better or gets solved (tirarsi fuori, risolvere). WIN OVER: to get someone’s support or friendship by persuading them or being nice to them (persuadere, convincere). DEAL WITH: to be concerned with (occuparsi di). KEEP UP: to continue doing something (continuare, portare avanti). 8