the great depression causes. warning signs in the 1920’s 1.major industries (steel, textiles,...
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The Great Depression
CAUSES
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Warning Signs in the 1920’s
1. Major industries (steel, textiles, railroads) losing money
2. Less consumer demand for “Boom Industries” like auto, housing, and consumer goods.
3. Farmers suffer most
- Boosted production = lower prices = lower income
4. Consumers have less $
5. Americans living on Credit
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Election of 1928
• Repub. Herbert Hoover defeats Dem. Alfred E. Smith
• Hoover = dry, not a Catholic, republican economic prosperity (thanks Coolidge)
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“The Long Bull Market”
• Stock Market: system for buying and selling shares of companies
• Stock markets can have a long period of rising stock prices called a bull market.
• S.M. soars, investors begin buying stock on margin.
• Margin: a small cash down payment on the actual worth of the stock.
• $1000 = $10,000 in stock $9000 was loaned to buyer from stockbroker who held stock as collateral.
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As long as stock prices keep rising buying on margin is “safe”
Example:• Investor borrows money from a
stockbroker to buy $11,000 worth of stock
• Waits a short time for stock to go up $12,000
• Investor sells stock, repays the loan and bada-bing $1,000 profit
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The Problem
• Margin inflates stock prices
• Broker could issue a margin cell : demand to repay loan immediately.
• Therefore investors super sensitive to any fall in stocks.
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The Great Crash
• Bull market only lasts as long as investors continue putting new money into it.
• By the late half of 1929, the market ran out of new customers.
• Black Tuesday: October 29, 1929 – stocks lost $10-$15 billion in value
• $30 Bill lost by November – equal to total wages earned in U.S. in 1929
• Stock Market crash did not cause the Great Depression
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Bank Runs
• People panic and pull their $ out of banks
• 25% of all banks close
• Wiped out 9 million individual savings account.
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Why?!1. Uneven distribution of income
- Top 5% of Americans earn 30% of nation’s income- 1% have 75% income increase- “normal” Americans have 9% increase
- Americans buying on installment plans can’t pay off debt = no $ to buy other goods
2. Lack of foreign markets for exports- no loans to foreign countries = no selling- Hawley-Smoot Tariff: raised highest average tariff rate
3. Federal Reserve mistakes- Didn’t raise interest rates
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The Great DepressionEFFECTS
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What Happened?
• Speculation
• Black Tuesday
• Overproduction by farms and factories
• Too much money was in the hands of few
• Credit
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The Depression WorsensConditions in the Cities
• Paralyzing fear and humiliation caused people to stay in houses they couldn’t afford.
• Bailiffs - Court appointed officers ejected nonpaying tenants.
• Newly homeless make shacks in communities called shantytowns.
• Shanty towns blamed on President called Hoovervilles.
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• Soup Kitchens and Bread Lines were set up by private charities
• Hobos: men looking for work and “wandering”
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Impact on Blacks and Latinos• Increased
violence to A.A. in competition for jobs
• Deported Latinos to Mexico, some volunteer some forced.
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The Dust Bowl
• Plows uprooted wild grasses holding soil moisture.
• Soil dries to dust & combines w/ windstorms from Dakotas to Texas called the “Dust Bowl”.
• Migrants from Oklahoma to the west called “Okies”.
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Effects on Family
• Men lost their hope
• Many men leave families out of humiliation
• Married women not allowed to work
• Children have serious health problems due to malnutrition or dust
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Psychological Problems
• Suicide rate rose by 30%
• Admission to mental hospitals rises
• Loss of faith in government and presidential seat.