The Great Depression and the New Deal

The Americans, Chapters 14 and 15

The Great Bull Market Individuals with excess cash in the 1920s

begin to invest heavily in the stock market Investors could now play the market on

credit, buying stock listed at $100 a share with $10 down and using a loan for the $90 Would reap a gain when the investment

went up In a Bull Market climate, everyone was

sure the market would go up

The Stock Market Crash It is often assumed that the

Great Depression was caused by the “Great Crash” in the fall of 1929, but this is an oversimplification.

The stock market crash was just one of the causes.

There were other serious weaknesses in the U.S. economy.

Bank Failures Thousands of bank failures

contributed to the Great Depression.

Rumors often led bank customers to panic and withdraw all their funds. This is called a “run on the bank.”

When the bank ran out of funds, the other depositors lost all their money and the bank went bankrupt.

Business Failures

90,000 businesses went bankrupt between 1929 and 1933.

One reason for this was that many industries had failed to adjust their high production rates to the declining demand in the late 1920s.

This was especially true with what are called “durable goods,” things that last a long time, like refrigerators, washing machines, and automobiles.

These surplus goods were already being stockpiled in company warehouses before the depression hit. Without buyers, companies could not afford to make more of these items. Factories had to close down.

Unemployment The closing of factories led to millions of lay-offs.

This sharp increase in the unemployment rate was the most obvious symptom of the Great Depression.

Many industries that were able to stay open were forced to decrease their overall production. They often had to turn full-time employees into part-time employees or lay off a portion of their workforce.

The resulting unemployment or under-employment had a profound impact on the American economy.

Income and Spending

The decline in consumer spending

forces businessesto cut production

Unemploymentdecreases

buying power

Cuts in production

lead to lay-offs

Consider this . . .

In this manner, the U.S. economybecame steadily worse between 1929 and 1933.

World Wide Depression Throughout the 1920s, while the American

economy was booming, European countries had been suffering economic hard times. They were still trying to recover from the impact of WWI.

Also, the U.S. passed high tariffs on imported goods to give an advantage to American industries, which restricted international trade.

When the depression hit the U.S., our trading partners around the world could not help us.

The Farming Crisis Before the Great Depression, U.S

farmers had been suffering from a depression in the farm economy due to overproduction.

The resulting low prices for farm products made it hard to make a profit.

They became deeply in debt and many farms were repossessed and sold at auction.

In the early 1930s, farmers in parts of the U.S. were hit by a severe drought that came to be called the . . .

How many states were partially in the region most affected by the Dust Bowl?

The Geographic Impact of the Dust Bowl Lack of rain led wells to dry up

and trees to die. High winds carried off the

loose topsoil, damaging the land for future farming.

This would lead many farmers in the region to give up their farms and move to states on the west coast seeking work.

Great Depression

Migrant Mother

Line outside Employment Office

Line at a soup kitchen

“Hoovervilles”

Hoover & Volunteerism Rejected proposals for government action and

instead relied on voluntary cooperation within business to halt the slide

Called on private charities and local gov’t to feed and clothe those in need

Rejected all requests for direct federal relief Reluctantly created Federal Farm Board which

loaned $ & bought surplus crops in order to raise farm prices

Cut taxes Federal work projects such as the Boulder

(Hoover) Dam to provide jobs for idle men Reconstruction Finance Corporation- loaned

gov’t $ to financial institutions to save them from bankruptcy

Bonus Army 1932- Hoover ordered Gen. Douglas MacArthur

to clear the “bonus army” out of Washington D.C. They had come to lobby Congress to pay a bonus

for military service that was due to them in 1945. Senate rejected the bonus bill; some veterans

stayed in Washington in huts; troopes drove bonus army out of capital with tear gas and burning shacks

Hurt Hoover’s image

Dealing with the Great Depression Between 1929 and 1932, the

Hoover’s administration was unable to bring about a real improvement in the economy

The public blamed Hoover for the worsening situation.

They elected FDR in 1932. He promised Americans a “New Deal.”

Herbert Hoover F. D. Roosevelt

The New Deal Congress cooperated

with the president to pass many reform measures aimed at relieving the symptoms of the Great Depression.

Lasting Impact of the New Deal The New Deal expanded the

government’s role in the economy. Roosevelt declared a “bank holiday,”

closing U.S. banks temporarily to restore public confidence and prevent further bankruptcies

Federal Deposit Insurance Corporation (FDIC)- insures banking accounts preventing bank failures

Security and Exchange Commission (SEC)- regulates and stabilizes the stock market

The Social Security Administration provides: • pensions for the elderly • aid to families with dependent children • unemployment compensation •assistance for the handicapped

The Agricultural Adjustment Act: Lowers farm production; reduced supply would

boost prices

Tennessee Valley Authority: Created thousands of jobs, provided flood

control, hydroelectric power, and other benefits to an impoverished region in Tennessee

New Deal programs like the PWA, the WPA, the NYA and the CCC were primarily aimed at putting people to work. This would theoretically “prime the pump” by increasing spending, which should increase production and, ultimately, create more jobs.

Historians suggest that these programs, while they served to improve public morale, were insufficient to really turn the economy around.

Reaction to the New Deal Roosevelt was deficit spending -spending

more $ than the government receives in revenue

Liberals- believed that the ND did not go far enough to reform economy

Conservatives- FDR spent too much $ on relief and used policies to control business and socialize the economy

Ending the Great Depression

The Great Depression was finally ended by the beginning of World War II and the full employment it provided.