Chapter 22: The Great Depression Begins

American History

The Long Bull Market

With the election of 1928 came Herbert Hoover, and along with him came great optimism for the country, which also drove up stock prices

The stock market is a system for buying and selling shares of companies

A bull market is a long period of rising stock prices, which was occurring during this time

As prices continued to soar, many investors bought stock on margin, or on a small cash down payment Stockbroker would issue a loan to the buyer, earning interest as well as

commission, and the buyer would pay back the loan overtime To protect the loan from falling in value, the broker could issue a

margin cell, or a request for the buyer to pay back the loan immediately

Buyers, hoping to make a quick fortune, would become risky, and instead of investing in the company’s future, would engage in speculation, betting the market would continue to climb

The Great Crash

The bull market only lasted as long as new investors placed money into it, which did not occur Professional investors began selling

their holdings, and other investors sold shares to pay off their loans, both causing prices to fall

On October 21st, the stock market plunged with investors scrambling to sell their stocks in order to pay off their loans

On October 24th (Black Thursday), the market plummeted further

On October 29th (Black Tuesday), prices took the steepest plummet in history

Banks in trouble The crash hurt the banks in two

ways: Banks lent money to stock

speculators, who could not not pay back the loans

Banks had invested depositor’s moneys into the stock market, which they lost

Because of their losses in the financial market, banks had to limit lending money, which made it hard for businesses to borrow money

With banks beginning to fail, many investors took out their deposits, for fear that the bank would fail and they would lose their savings

The Roots of the Great Depression

The immediate cause of the depression was the stock market crash; however, the long term causes came from the 1920’s Overproduction, and the inability of people to buy up these

overproduced goods▪ Most Americans bought items using an installment plan, or a plan to make a

small down payment, and pay the rest monthly Families had to limit their spending, which caused a reduction in

consumption, which caused a reduction in production, and laying off of employees

Loans weren’t being given to foreign countries in order to buy American goods

Tariffs (Hawley-Smoot Tariff) increased the prices of foreign goods, which caused people not to buy so much of these goods

Interest rates for loans were very low from the Federal Reserve, causing money to become easily accessible▪ Caused banks to make risky loans▪ Businesses borrowed more money to increase production

Life during the Depression

With banks failing, unemployment rose and the average annual income for a family went down

Those who were hungry had to line up for bread lines and soup kitchens in order to be fed

Those who could not pay the mortgage lost their homes Landlords asked bailiffs, or court

officials, to kick them out Those who were homeless

gathered into a community and built shantytowns Ex. Hoovervilles

Many would travel the country in search of jobs (hobos)

The Dust Bowl

A terrible drought hit the Great Plains in 1932, leaving pastures and fields dry Dust would carry hundreds of

miles, leaving skies black, and burying crops and livestock

Farmers were unable to pay the mortgage on their land, so many moved to California in search of a better life▪ “Okies”, since many were from

Oklahoma

Entertainment during the Depression

Americans used film and radio to try and escape from the hard experiences of the Depression Many would go to the movies and

see rich and powerful people live happy lives

Many actors and actresses left their homelands in Europe to seek a better life in America

Many also loved cartoons▪ Walt Disney

Many listened to the radio at home, listening to soup operas, or stories about troubles in middle class families, and adventure stories

The Depression in Art

The homeless and poor were the subjects of many paintings and books written during this time Grant Wood “American

Gothic” John Steinbeck “The

Grapes of Wrath” William Faulkner “The

Sound and the Fury”

Hoover Responds

Hoover’s first step was to keep factories open and eliminate slashing wages, which didn’t work

Hoover’s next step was to implement public works, or government financed building projects Only made up for a small fraction of jobs lost

In order to create new jobs, Hoover had to increase government spending, which he would not do Thought increasing spending would take

money away from consumers and businesses, who needed it the most

Due to the Depression, the Republicans lost the majority of the House of Representatives and the Senate in the mid-term elections

Getting money into the economy

Hoover’s plan was to pump money into banks in order for them to lend money to corporations Set up the National Credit Corporation, which contained a pool

of money from contributing banks to use towards corporations After this plan failed, Hoover’s only conclusion was for

the government to do the lending Set up the Reconstruction Finance Corporation, lending money

to banks, railroads, and agricultural institutions▪ Failed, ultimately, in its goal to stimulate the economy

Hoover, who did not favor the government becoming involved in relief, or money going towards impoverished families, signed the Emergency Relief and Construction Act, which gave money to state and local governments to go towards public works and relief efforts

People getting angry

Hunger marches and grocery store raids began to occur

Farmers, in fear of having their lands foreclosed, or taken from them by re-possessors, destroyed their crops in order to raise crop prices

Veterans from World War I marched to Washington to petition for early bonus payments they received for military service “Bonus Army” Lost their petition, stayed in

Washington, and were forcibly moved out by the military months later