2Boom… May 1928-September 1929 40% average increase in value of stocks. Speculative feverBuying on margin encouraged by brokersOnly have to put %10 down
3Bust… Began fall of 1929 October 29, 1929 – “Black Tuesday” 16 million shares traded (compared to 2-5 million)Many stocks became worthlessMarket continued to decline in following months, then deeply depressed.
4Banks Suffer Many banks had lent money to stock speculators. Many banks had invested depositors’ money in stock market.When stock market crashes:Banks lose money on investments.Speculators default on loans.Banks lend less money – consumers and businesses unable to borrow and spend.Many banks forced to close money disappears.Bank runs
5Causes of the Great Depression Stock market crash was NOT the cause of the Great Depression!!!The crash was merely a symptom of many underlying causes.
6Causes of the Great Depression Lack of diversification in the economyTwo main industries: automobiles, constructionThose two decline multiplier effect
7Causes of the Great Depression Mal-distribution of purchasing power/Weakness in consumer demand½ Americans lived at or below poverty levelToo poor to buy the goods the new economy was producing.
8Causes of the Great Depression Credit StructureInstallment plansFarmers deeply in debtBanks unstable due to loan situation, banks often invested in stocks.
9Causes of the Great Depression America’s position in international tradeDemand for American goods began to decline – Europe recovering from WWI – became productiveAmerican protective tariffs made trade difficult.
10Causes of the Great Depression European economy destabilized by international debtEuropean countries owed money to American banks b/c of WWIReparations were used to pay loansGermany and Austria unable to payAmerican banks refused to forgive loans.Loaned countries money to pay back loans.
11Hoover First attempts to bolster public confidence “The fundamental business of this country is on a sound and prosperous basis.”Attempted to use government spending as a tool to fight depressionToo little spendingRelied on state and local governments to spend for construction.
12Hoover Farmers Hawley-Smoot Tariff 1929 – Agricultural Marketing Act – voluntary cooperation to limit productionFarm Board established to buy surplusesHawley-Smoot TariffHighest tariff ever!Designed to protect farmersHorrible impact on Economy!
14Hoover Spring 1931 – International monetary crisis US banks no longer able to make loans to European countries.American banks get in serious financial trouble – mortgages called inJan – Reconstruction Finance CorporationProvide federal loans to troubled banks and other businesses.Make funds available to local gov’t for relief projects.Limited effectiveness
16Election of 1932 Franklin D. Roosevelt “I pledge you, I pledge myself, to a new deal for the American people.”
17The New Deal Watershed event in US history Did not end the Depression. Did end the disastrous downward spiral in 1933.Keynsian economicsThe 3 R’s: relief, recovery, reform
18Emergency Measures Bank Holiday Ended Prohibition 4 days in duration Worked – ¾ of banks in Federal Reserve System reopened within 3 daysEnded Prohibition21st Amendment
19Agricultural Adjustment Act - 1933 Reduce crop production and surplusesFarmers told how much to plantGiven subsidies to NOT grow certain cropsVery controversial!Did increase farm prices and incomeStruck down by Supreme Court then replaced by similar act.
20National Industrial Recovery Act, 1933 National Recovery AdministrationVoluntary!Every business called on to accept a minimum wage30-40 hour workweekAbolition of child laborPricing agreementsNRA blue eagleAfter a short time, began to fall apartSchecter v. US – struck down law
21Rights of laborers Fair Labor Standards Act – 1938 Minimum wage - $.40/hrMaximum 40 hour work weekLabor for under 16 prohibited
23Financial Programs Off the gold standard. Glass-Steagall Act – gov’t given authority to curb speculation by banksFDIC establishedGov’t guarantee deposits – up to $250,0o00Truth-in-Securities Act, 1933Securities and Exchanges Commission, 1934
24Relief Federal Emergency Relief Administration Harry HopkinsCivil Works Administration – temporary projectsCivilian Conservation Corps – young menFarm Credit Administration – farm mortgage reliefHome Owner’s Loan Corporation – home mortgage reliefHelped to tie middle class to Democratic party
25Election of 1936 “Referendum” on FDR and the New Deal Vs. Alfred LandonDemocrats – strong coalitionFarmersUrban workersPoorBlacksProgressivesLiberals
26Court-Packing Plan FDR upset with Supreme Court Narrow interpretation of Constitution over interstate commerceFearful of other New Deal programs being struck down.FDR proposed expanding court (9-15)Conservatives upset!“This is how dictators come to power!”Supreme Court fixed problem itself – began to vote in favor of New Deal.
27Congress Congress began abandoning New Deal FDR’s power no longer as strong.No longer automatic “rubber stamp.”Severe recession – Fall 1935 – hurt FDRDifficult to get new legislation enacted