1. THE NATION’S SICK ECONOMY Chapter 14, Section 1

2. Decreased Demand in Industry  Key BIG industries like mining, lumbering, railroads, textiles, steel, struggle:  Though at an all-time high during WWI, no longer in high demand  Railroad and coal industries suffering due to replacement technologies like the automobile and hydroelectric or natural gas

3. Consumer Industries decline  Consumer industries (new home construction, automobiles, electrical appliances) had falling sales  Housing starts (new homes being built) declined, which was a sure sign of recession  Deflation: In 1930 average new house cost $7,145.00 and by 1939 was $3,800.00  Production of consumer goods:  fell 36% from 1929 to 1930  fell another 36% from 1930 to 1931.  Deflation: consumer prices fell 24.4% by 1934

4. The 1931-1935 Buick Eight

5. 1930s Washing Machine Washing by hand

6. A 1934 kitchen with electric appliances

7. Farmers’ Problems  During WWI:  High Demand for food = high prices (inflation)  Improved farming methods = Farmers can produce more = they need loans for land and equipment = surplus food  Post WWI:  Low demand = low prices - deflation of 40%  Farm income declined from 10 billion to 4 billion (1919 – 1921)  farmers can’t pay back loans = foreclosure and land seizure by the bank  Farmers increased production to make more money = even higher surpluses of foods

8. McNary Haugen Bill: 1928  To aid farmers, Congress tries to pass price-supports - government buys surplus products and sells on the world market – on key goods like wheat, corn and cotton  vetoed by President Coolidge. 1925192919301931 Wheat (Bushel) $1.67$1.18$0.90$0.606 Corn (Bushel) $0.70$0.80$0.60$0.32 Raw Cotton (Pound) $0.235$0.19$0.135$0.085

9. Farm equipment is auctioned off in Nebraska.

10. Living on Credit  Americans were living “beyond their means” due to buying on credit  Credit was very easy to get = fueled a consumer buying boom  Installment plans - paying a small percentage to take the item home then making monthly payments (plus interest) to pay for it over time  Often don’t actually “own” the item / car / house  Consumers in the late 1920s have less to spend because of:  inflation (higher prices)  wage deflation  growing unemployment  unbalanced distribution of income (the poor largest part of the population had very little buying power)  personal debt.  Many consumers already had too much stuff  Consumers spend less = vicious cycle that causes more businesses to reduce number of workers

11. Consumer Debt  1929: $3 Billion (Consumer Credit owed)  1927: 15% of all consumer goods bought on installment payments  60% of automobiles bought on installment payments  80% of radios bought on installment payments  Consumer debt today (very depressing): http://www.nerdwallet.com/blog/credit-card- data/average-credit-card-debt-household/

12. Uneven Distribution of Income  1920s return to “laissez faire style” government benefited wealthy industrialists  Gap between the rich and the poor – not enough money “trickling down.”  The rich got richer and poor got poorer  Wealthiest 1% income went up 75% compared to only 9% for the rest of the population  Huge number of lower class ignored by the “prosperity of the 1920s” because wages didn’t increase and farm prices were low  70% earned less than $2,500 per year (minimum a “middle class” family could live on)  80% have no savings!

13. Wage deflation:  1930s average family income dropped 40%  Many different estimates of average income per year  $1,970.00 dropped to $1,730.00  $2,300 dropped to $1,500  Other estimate: $1368 as average  Book says: Average income fell to $1,500 in 1933 from $2,300 in 1929.

14. YearUnion membership Rates 193012.3 193513.8 194027.6 Industrial workers in the mass-production industries–steel, automobiles, rubber, and electrical equipment–were organized during this time.

15. The Stock Market  Bull Market (doing well) during the late 1920s = Prices rising  Dow climbed almost 300 points – up to 381  By 1929, 4 million people owned stock  But there was no regulation of the stock market and only limited regulation of business practices  Over-Inflated Stock Market:  People used speculation—buying stocks to make quick profit  People who could not afford stock began “buying on margin” - paying a small percent of a stock’s price as a down payment and then borrowing the rest  $8.5 billion dollars were loaned out to investors = more than all the circulated currency in the US at the time  From 1920 to 1929 stocks more than quadrupled in price http://www.c2vtrader.com/1929-Crash.php http://www.c2vtrader.com/1929-Crash.php

16. Warning Signs on the Stock Market  By 1925, the real estate market was already falling (a sure predictor that the economy is weak)  March 1929:  September 1929:  On September 3 the market hit its all time high and then suddenly dipped (the crash had begun, but no one realized)  September 25, the market briefly climbed

17. Crash of 1929 caused by PANIC  October 24, 1929: prices dropped as nervous investors began to unload shares  Led to a lack of confidence in the market = investors sell more  October 29, 1929—Black Tuesday  Prices drop as investors tried to sell 16 million shares  People who had bought “on margin” were now in huge debt because the stock price dropped below what they had paid  By mid-November, investors had lost $30 billion dollars  Crash ends in 1932 when stock market had lost about 90%  Black Tuesday didn’t “cause” the Great Depression; It was a symptom of a sick economy

19. Boom and Bust  In the years leading up to 1929, the stock market was the new gold rush.  People bought shares with the expectations of making more money.  The market got caught up in a speculative bubble.  Prices were not being driven by economic fundamentals but the optimism / exuberance of investors.  When some companies posted disappointing results, some investors tried to cash in on their profits. This initial selling caused a fall in prices which caused other investors to panic and sell

20. Front page of the Brooklyn Daily Eagle newspaper on Oct. 24, 1929 (also known as Black Thursday) reads "Wall St. in Panic as Stocks Crash."

22. Stock Prices Drop:  General Motors: 73 points to 8  US Steel: 262 points to 21  RCA: 101 to 2.5

23. Albert H. Wiggin: The Market Crash Millionaire http://www.investopedia.com/articles/stocks/09/insider-trading.asp http://www.investopedia.com/articles/stocks/09/insider-trading.asp  Suffering from a lack of real information, many people believed “coattail investing” (copying big banks’ strategies)  Unfortunately, many investors didn’t know about hidden sell orders that protected the banks if the stock price fell.

24. “Short sell”  when you short sell a stock, your broker will lend it to you. The shares are sold and the proceeds are credited to your account. Sooner or later, you must "close" the short by buying back the same number of shares (called covering) and returning them to your broker. If the price drops, you can buy back the stock at the lower price and make a profit on the difference. If the price of the stock rises, you have to buy it back at the higher price, and you lose money.

25. Wiggins  After the crash it was revealed that Albert Wiggin, head of Chase Bank, had shorted 40,000 shares of his own company. This is like a boxer betting on his opponent.  There were no specific rules against shorting your own company in 1929, so Wiggin legally made $4 million from the 1929 crash  This and similar cases led to a revision of the 1933 Securities Act

26. JP Morgan Bank and Insider Trading  In May 1933, U.S. Senate Banking Committee exposed how JP Morgan & Co. reserved shares at reduced prices for certain clients, giving guaranteed profits to former President Calvin Coolidge, the chairmen of the Republican and Democratic national committees, and the CEOs of General Electric, AT&T, and Standard Oil etc.  investigators turned up a 'preferred list' of highly placed Americans allowed to buy low and sell high on insider information.  http://insidertrading.procon.org/view.resource.php?resourceID=0023 91#1800 http://insidertrading.procon.org/view.resource.php?resourceID=0023 91#1800

27. What is insider trading?  X that works for XYZ Company knows that last year’s performance was awful. The company has not made the news available to the public but X tells his friend Z what is going on and Z shorts a million stocks of XYZ Company. A few days later, XYZ company’s stocks plummet making Z a millionaire in less than a month.

28. Banks Failed  By 1933 almost half of the nation’s banks had gone bankrupt  People with money in savings lost it all because:  Banks were not insured by the government  Banks had invested in the stock market  people panicked and tried to withdraw all of their money in a “run on the bank” causes the bank to run out of cash  Banks were owed money by people (buying on margin, installment buying, house loans, etc.) and were not being paid back  Between 1929 and 1933, 10,763 of the 24,970 commercial banks in the United States failed.  9 million bank account owners lost their entire saving

29. Businesses Failed  Companies went bankrupt (90,000) or began to cut production and services = eliminated jobs  Unemployment rate went from 3 percent in 1929 to 25% in 1933; in some areas it reached 50%  Toledo, Ohio peaked at 80%!

30. Unemployment Real Numbers of Unemployment: 3 million in 1929 4 million in 1930 8 million in 1931 12.5 million in 1932. Population: 123,188,000 Year Unemployment rate 1923-293.3 19308.9 193115.9 193223.6 193324.9 193421.7 193520.1 193617.0 193714.3 193819.0 193917.2 194014.6 19419.9 19424.7 http://www.bls.gov/opub/cwc/cm2003 0124ar03p1.htm

31. Europe’s Depression  Countries faced great debts due to WWI and relied on two factors to help:  Germany to pay war reparations, which they could not (printed more money = inflation)  German unemployment hit 25%  Selling goods in the United States, which they could not because of the Hawley-Smoot Tariff which was the highest protective tariff in U.S. history  Many countries retaliated and raised their tariffs which reduced U.S. imports to Europe further hurting American companies  In May 1930, Canada, retaliated by imposing new tariffs that impacted 30% of U.S. exports to Canada  by 1932 the total value of world trade had fallen by more than half

32. Impact of Smoot Hawley  U.S. imports decreased 66% from US$4.4 billion (1929) to US$1.5 billion (1933)  U.S. imports from Europe decreased from a 1929 high of $1.3 billion to just $390 million in 1932  US exports decreased 61% from$5.4 billion to $2.1 billion,  exports to Europe decreased from $2.2 billion in 1929 to $784 million in 1932.  Though these are big numbers, Imports during 1929 were only 4.2% of the United States' GNP and exports were only 5.0% - the tariff hurt European nations far more

35. Dust Bowl  Great Plains Drought  Hardest hit region: Kansas, Oklahoma, Texas, New Mexico, Colorado  Caused many to abandon their farms  Many travelled West to California, becoming migrant workers

36. What caused the Dust Bowl?  Over-settlement of the Great Plains due to government land give- aways throughout the late 1800s like the Homestead Act  Over-farming of the land because of high prices during WW1  Plowing in and removing sod / trees left ground susceptible to erosion 1930s weather: serious drought lasts for years  1934 drought = worst in U.S. history, covering more than 75% of US (27 states affected) When windstorms hit = top soil erosion  The "Yearbook of Agriculture" for 1934: "Approximately 35 million acres of formerly cultivated land have essentially been destroyed for crop production.... 100 million acres now in crops have lost all or most of the topsoil; 125 million acres of land now in crops are rapidly losing topsoil... “  April 14, 1935: Black Sunday. The worst "black blizzard"

37. Descriptions of the Dust Bowl  Storms could last from a few hours to a few days.  Dust storms could by hundreds of miles wide and thousands of feet high  Planes would have to turn back rather than fly above, around or through due to risk of static electricity  Dust storms caused huge increases in static electricity – touching a barbed wire fence could electrocute animals  Dust storms caused dunes buried some houses and farm equipment  Children and the elderly began to die of “dust pneumonia” which was caused when inhaled dusted caused microscopic cuts inside lungs and infections  People and animals caught in storms could be blinded or suffocated

38.  primary source interviews.  http://www.pbs.org/wgbh/americanexperience/ dustbowl/ http://www.pbs.org/wgbh/americanexperience/ dustbowl/  “About the Dust Bowl.” Modern American Poetry. http://www.english.illinois.edu/Maps/depression/dustbowl.htm

43.  Why was it “Great” when other depressions had occurred before (1893, 1907 etc)?

44. Why “Great” Depression:  Length of time: 1929 – start of WWII  Number of people impacted: 25 – 40% unemployment  Denial – Hoover kept telling America they had “turned the corner” toward prosperity  Prior to the 1930s, America had overcome depressions because most people lived on farms and could grow / make what they needed in hard times; with huge urban populations, Americans needed jobs to buy basics  It spread across Europe as countries enacted tariffs