Presentation on theme: "The Great Depression. Boom… May 1928-September 1929 40% average increase in value of stocks. Speculative fever Buying on margin encouraged by brokers."— Presentation transcript:
The Great Depression
Boom… May 1928-September 1929 40% average increase in value of stocks. Speculative fever Buying on margin encouraged by brokers Only have to put %10 down
Bust… Began fall of 1929 October 29, 1929 – “Black Tuesday” 16 million shares traded (compared to 2-5 million) Many stocks became worthless Market continued to decline in following months, then deeply depressed.
Banks 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
Causes 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.
Causes of the Great Depression Lack of diversification in the economy Two main industries: automobiles, construction Those two decline multiplier effect
Causes of the Great Depression Mal-distribution of purchasing power/Weakness in consumer demand ½ Americans lived at or below poverty level Too poor to buy the goods the new economy was producing.
Causes of the Great Depression Credit Structure Installment plans Farmers deeply in debt Banks unstable due to loan situation, banks often invested in stocks.
Causes of the Great Depression America’s position in international trade Demand for American goods began to decline – Europe recovering from WWI – became productive American protective tariffs made trade difficult.
Causes of the Great Depression European economy destabilized by international debt European countries owed money to American banks b/c of WWI Reparations were used to pay loans Germany and Austria unable to pay American banks refused to forgive loans. Loaned countries money to pay back loans.
Hoover 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 depression Too little spending Relied on state and local governments to spend for construction.
Hoover Farmers 1929 – Agricultural Marketing Act – voluntary cooperation to limit production Farm Board established to buy surpluses Hawley-Smoot Tariff Highest tariff ever! Designed to protect farmers Horrible impact on Economy!
Hoover Hoover blamed “Hoovervilles”
Hoover 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 in Jan – Reconstruction Finance Corporation Provide federal loans to troubled banks and other businesses. Make funds available to local gov’t for relief projects. Limited effectiveness
Election of 1932 Franklin D. Roosevelt “I pledge you, I pledge myself, to a new deal for the American people.”
The New Deal Watershed event in US history Did not end the Depression. Did end the disastrous downward spiral in Keynsian economics The 3 R’s: relief, recovery, reform
Emergency Measures Bank Holiday 4 days in duration Worked – ¾ of banks in Federal Reserve System reopened within 3 days Ended Prohibition 21 st Amendment
Agricultural Adjustment Act Reduce crop production and surpluses Farmers told how much to plant Given subsidies to NOT grow certain crops Very controversial! Did increase farm prices and income Struck down by Supreme Court then replaced by similar act.
National Industrial Recovery Act, 1933 National Recovery Administration Voluntary! Every business called on to accept a minimum wage hour workweek Abolition of child labor Pricing agreements NRA blue eagle After a short time, began to fall apart Schecter v. US – struck down law
Rights of laborers Fair Labor Standards Act – 1938 Minimum wage - $.40/hr Maximum 40 hour work week Labor for under 16 prohibited
Tennessee Valley Authority
Financial Programs Off the gold standard. Glass-Steagall Act – gov’t given authority to curb speculation by banks FDIC established Gov’t guarantee deposits – up to $250,0o00 Truth-in-Securities Act, 1933 Securities and Exchanges Commission, 1934
Relief Federal Emergency Relief Administration Harry Hopkins Civil Works Administration – temporary projects Civilian Conservation Corps – young men Farm Credit Administration – farm mortgage relief Home Owner’s Loan Corporation – home mortgage relief Helped to tie middle class to Democratic party
Election of 1936 “Referendum” on FDR and the New Deal Vs. Alfred Landon Democrats – strong coalition Farmers Urban workers Poor Blacks Progressives Liberals
Court-Packing Plan FDR upset with Supreme Court Narrow interpretation of Constitution over interstate commerce Fearful 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.
Congress Congress began abandoning New Deal FDR’s power no longer as strong. No longer automatic “rubber stamp.” Severe recession – Fall 1935 – hurt FDR Difficult to get new legislation enacted