Unit VIII – Boom Times Unit VIII – Boom Times and Challengesand Challenges

Chapter 25 – The Great DepressionChapter 25 – The Great DepressionSection 1 – The End of ProsperitySection 1 – The End of Prosperity

The End of ProsperityThe Big Idea

The collapse of the stock market in 1929 helped lead to the start of the Great Depression.

Main Ideas• The U.S. stock market crashed in 1929.• The economy collapsed after the stock market crash.• Many Americans were dissatisfied with Hoover’s reaction

to economic conditions.• Roosevelt defeated Hoover in the election of 1932.

The Appearance of ProsperityStrong Economy

Between 1922 and 1928 the U.S. gross gross national productnational product, or total value of all goods and services, rose 40 percent.40 percent.

Though farmersfarmers and some other workers didn’t benefitdidn’t benefit, the overall economy performed well, especially for automakers and those who made auto parts.

1 on 5 Americans owned a car in 19291 on 5 Americans owned a car in 1929 Corporation profits were on the rise. Overall unemployment remained lowunemployment remained low,

averaging around five percent between 1923 and 1929.

Union membership slowedUnion membership slowed as employers expanded welfare capitalism programs, or employee benefits.

This feeling of prosperity encouraged workers to buy new products and enjoy leisure activities such as movies.

Strong Stock Market The stock market, where people buy stock market, where people buy

stocks, or sharesstocks, or shares, in companies, performed very well in the 1920s, with stock values sharply increasing each month.

The value of stocks traded quadrupled stocks traded quadrupled over nine yearsover nine years.

The steep rise in stock prices made people think the market would never drop, and more ordinary Americans ordinary Americans bought stocksbought stocks than ever before.

This encouraged more investors, who investors, who borrowed more money(on margin),borrowed more money(on margin), which increased the number of shares traded and caused the price of stock to go up.

The number of shares traded rose from shares traded rose from 318 million in 1920 to over 1 billion in 318 million in 1920 to over 1 billion in 1929.1929.

Business leaders said everyone could get rich from stocks.

Main Idea 1: The U.S. stock market crashed in 1929.

1920s1920s stock market was a bull marketbull market, or one with rising stock values. Many people began to buy stocks. Some who could not afford the stocks’ full price began buying on buying on

marginmargin, or purchasing stocks on credit. Few considered what might happen if the bull market turned into a

bear market, or one with declining stock prices.

Stock prices peaked in the summer of 1929Stock prices peaked in the summer of 1929. Prices started to drop. Frightened investors rushed to sell their stocks in order to pay off

their loans.

Credit and the Stock Market

The Federal Reserve

Investors increasingly used credit to buy stocks as the market rose.

Buying on Margin

In September 19291929, total value of all stocks was $87 billion.• On Thursday, October 24Thursday, October 24, panic hit the stock market.

– Within three hours the market lost $11 billion in value.

• On Monday, October 28, prices droppedMonday, October 28, prices dropped again.• On Tuesday, October 29, the stock market Tuesday, October 29, the stock market

crashedcrashed.– So many people wanted to sell their stocks, and so few

wanted to buy, that stock prices collapsed.– Became known as Black TuesdayBlack Tuesday

By November 1929, $30 billion in stock value had $30 billion in stock value had disappeared.disappeared.

Black Tuesday

The Stock Market CrashesThe Stock Market Crashes IdentifyIdentify – By what name did the day the

stock market crashed become known? RecallRecall – When the market crashed, what did

most stockholders want to do with their stocks.

EvaluateEvaluate – If you owned stock, which type of market would you want, bull or bear? Why?

Main Idea 2: The economy collapsed after the stock market crash.

Banking crisesBanking crises after the stock market crash

In 1929 banks had little cash on hand and were vulnerable to “runsruns,” or a string of nervous depositors withdrawing money.

A run could quickly drain a bank of all its cash and force its A run could quickly drain a bank of all its cash and force its closure.closure.

Public panicPublic panic followedEffects on businessEffects on businessUnemployment soared to more than 4 Unemployment soared to more than 4

million workers.million workers.

• OverproductionOverproduction– American businesses were producing far more goods than people were consuming.

• Declining world tradeDeclining world trade– Europe, still recovering from the war, could not afford to buy American goods or to pay the high tariffs required to sell their own goods in the United States.

Causes of the Great Depression

• Uneven distribution of wealthUneven distribution of wealth– millions of Americans did not earn enough to afford expensive new products.

• Government’s monetary policy- Government’s monetary policy- Federal Reserve and Money system

Business cycleBusiness cycle –

Other Causes of the Great DepressionOther Causes of the Great Depression1) The Stock Market Crash 1) The Stock Market Crash

of 1929- a trigger.of 1929- a trigger.2) Speculation in Stock 2) Speculation in Stock

Market- buying on Market- buying on margin and cheap moneymargin and cheap money

3) Banking crisis.3) Banking crisis.4) Republican Party4) Republican Party5) Lack of diversification.5) Lack of diversification.6) Post war deflationary 6) Post war deflationary

procedures.procedures.7) The Credit structure.7) The Credit structure.

Effects of the CrashEffects of the Crash

Stock Market Crash

Cause

Individuals

Effects

Effects of the CrashEffects of the Crash

Effects on IndividualsEffects on IndividualsInvestors ruinedInvestors ruined, huge fortunes , huge fortunes

disappeareddisappearedMargin buyers- had to pay back the Margin buyers- had to pay back the

margin call to brokers and sold for lessmargin call to brokers and sold for less then they paid. Causing loss of savings then they paid. Causing loss of savings and still owed money.and still owed money.

Effects of the CrashEffects of the Crash

Stock Market Crash

Cause

Individuals

Effects

Banks

Effects of the CrashEffects of the Crash Effects on Banks-Effects on Banks- crash triggered a bank crisis crash triggered a bank crisis

Not all Americans invested but most all had money in Not all Americans invested but most all had money in savings.savings.

Runs on the banksRuns on the banks to get deposits out- Hundreds of banks to get deposits out- Hundreds of banks failed.failed.

By 1933- By 1933- bank failures wiped out billions of dollars of bank failures wiped out billions of dollars of savingssavings, add this to the crash and things got worse., add this to the crash and things got worse.

Banks had Banks had no deposit insuranceno deposit insurance and little cash on hand. and little cash on hand. Banks had made Banks had made investmentsinvestments themselves in the themselves in the

stockmarket- these are now lossesstockmarket- these are now losses LoansLoans to stockbrokers became losses. to stockbrokers became losses.

Effects of the CrashEffects of the Crash

Stock Market Crash

Cause

Individuals

Effects

Banks

Business

Effects of the CrashEffects of the Crash Effects on Business-Effects on Business-

money scarcemoney scarce, banks and investors unwilling or unable , banks and investors unwilling or unable to provide the money for business to grow and expand.to provide the money for business to grow and expand.

Consumers cut back spendingConsumers cut back spending and companies began to and companies began to lay offlay off workers. workers.

Unemployed workers make less money, less purchases Unemployed workers make less money, less purchases and companies again lay off.and companies again lay off.

Wages droppedWages dropped by over $4 Billion. Consumers by over $4 Billion. Consumers stopped spending.stopped spending.

Effects of the CrashEffects of the Crash

Stock Market Crash

Cause

Individuals

Effects

Banks

Business

Overseas

Effects of the CrashEffects of the Crash Effects overseas-Effects overseas- began in U.S. but rippled over began in U.S. but rippled over

seas.seas. U.S. banks called in loansU.S. banks called in loans to foreign countries to foreign countries

crippled from WWI.crippled from WWI. Foreign countries exported lessForeign countries exported less to U.S. due to low to U.S. due to low

buying power there. And foreign companies began buying power there. And foreign companies began to lay off workers.to lay off workers.

Governments around the world Governments around the world raised the tariffs raised the tariffs on importson imports to protect their industries. to protect their industries.

The Economy CollapsesThe Economy Collapses RecallRecall – What two things caused banks to

close? ExplainExplain – How did people lose their life

savings? Identify Cause and EffectIdentify Cause and Effect – How did the

stock market crash affect banks and businesses?

Development of the Great DepressionDevelopment of the Great Depression Farm FailuresFarm Failures

Unemployment reduced American’s ability to buy food Unemployment reduced American’s ability to buy food and people went hungryand people went hungry

Farmers Farmers overproducedoverproduced, surpluses went up and prices , surpluses went up and prices went down.went down.

Lower pricesLower prices means lower income for farmers. means lower income for farmers. Farmers borrowedFarmers borrowed for land and equipment, now were for land and equipment, now were

unable to repay loans.unable to repay loans. 1933- over 364,000 1933- over 364,000 foreclosures-foreclosures- Foreclosure occurs when a

lender takes over ownership of a property from an owner who has failed to make loan payments.

The Economy CollapsesThe Economy Collapses RecallRecall – What was the national employment

rate before and after the stock market crash? IdentifyIdentify – What percentage of Americans

earned 1/3rd of all income? ElaborateElaborate – How did World War I affect the

American economy?

What did Hoover do?What did Hoover do? Traditional Approach to a Traditional Approach to a

depressiondepression-- Cut Government Cut Government Spending and let the Depression Spending and let the Depression burn it self out-burn it self out- this will get rid this will get rid of the rottenness in the system.of the rottenness in the system.

Hoover did not sit stillHoover did not sit still He called on He called on states, cities, and states, cities, and

all private charititesall private charitites to feed the to feed the hungry. hungry. Resisted giving direct Resisted giving direct assistance to individualsassistance to individuals

Brought Brought business and labor business and labor leaders togetherleaders together..

Cut his own salary by 1/5thCut his own salary by 1/5th Cut taxes-Cut taxes- did little good did little good Public works jobs- Public works jobs- CreatedCreated

Reconstruction Finance Reconstruction Finance CorporationCorporation that loaned $1.2 that loaned $1.2 billion to financial institutionsbillion to financial institutions

Nation’s Response to Hoover Losing favorLosing favor

Hoover was optimistic- but the worst was yet to come.

He still refused direct aid. But he did give aid to banks and businesses

but not individuals. Bonus Army-Bonus Army- 15,000 set up camp

1932- WWI Veterans march on Washington to demand their bonus $1.25 for each day overseas- to be paid in 1945

They need the money now Hoover sent out the troops to clear them out-

Violence Voter Reaction- 1930Voter Reaction- 1930 Republicans

began to lose seats in Congress.

Hoovervilles

"Hoovervilles" sprang up across America in the "Hoovervilles" sprang up across America in the 1930s. They took their name from President 1930s. They took their name from President Herbert Hoover who was in office when the Great Herbert Hoover who was in office when the Great Depression began. "Hoovervilles" were clusters of Depression began. "Hoovervilles" were clusters of shacks where destitute people had to live. They shacks where destitute people had to live. They were made up of packing crates, abandoned cars, were made up of packing crates, abandoned cars, and other cast off scrap. They were shanty towns and other cast off scrap. They were shanty towns that were located outside of major cities. that were located outside of major cities.

The Human Impact of the Great Depression

Hoboes• HoboesHoboes were mostly men, but included teens and women.

• Boarding trainsBoarding trains was hard and illegal, and railroads hired guards to chase hoboes away.

• Finding food was a constant challenge, because people had little to spare and rarely shared with hoboes.

• Hoboes developed a system of sign language to warn of possible dangers or opportunities.

The true measure of the Great Depression’s disaster lies in how it affected the American people.

Hoovervilles• Thousand applied for a handful

of jobs, and job loss resulted in poverty for most Americans.

• To survive, people begged door to door, relied on soup kitchens and bread lines. Some went hungry.

• Some who lost their homes lived in shantytowns, or shantytowns, or HoovervillesHoovervilles, named after President Hoover who many blamed for the Great Depression.

Hoover’s ReactionHoover’s Reaction IdentifyIdentify – What groups did Hoover believe

should give assistance to the poor? ExplainExplain – How did government programs

give assistance to the nation under Hoover? ElaborateElaborate – What would you have done

differently about the Bonus Army encampments?

The Election of 1932 Americans blamed President HooverAmericans blamed President Hoover for the country’s

economic woes. Franklin Delano RooseveltFranklin Delano Roosevelt won the Democratic Party’s

nomination. He was related to Theodore Roosevelt. He survived poliopolio. He was governor of New York.

Roosevelt promised relief for the poor and more public Roosevelt promised relief for the poor and more public works programs to provide jobsworks programs to provide jobs. He attacked Hoover and the Republicans for their response to the Great Depression.

Roosevelt won a landslide victory—winning more than 57 percent of the popular vote.

The Election of 1932 What were the key events of the presidential

election of 1932? Recall- What government jobs did Roosevelt

hold before running for president? Explain- How did Roosevelt plan to turn the

economy around? Evaluate- Do you think as a presidential

candidate, Roosevelt should have clearly described his plans to end the Depression?

Election of 1932Election of 1932 RecallRecall – Which two candidates

ran in the 1932 presidential election?

RateRate – Which party’s idea about aid to needy Americans would work best?