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Chapter 21: The Great Depression Begins

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1 Chapter 21: The Great Depression Begins
The Big Picture: The Boom times of the 1920s had never reached into all sectors of the economy. In 1929 the economy’s underlying weaknesses were exposed when the stock market collapsed, and the nation plunged into the worst economic depression in history.

2 Chapter 21 Section 1: The Great Crash
Main Idea: The stock market crash of revealed weaknesses in the American economy and helped trigger a spreading economic crisis.

3 An Appearance of Prosperity
The “Roaring Twenties” was a time of impressive and sustained growth for the economy as a whole. The Gross Domestic Product, the value of goods and services produced in a nation during a specific period, rose by 30 percent. The Growth of American manufacturing, especially the automobile, helped expand the American economy. Unemployment remained very low – around 3%. Welfare capitalism helped increase workers sense of prosperity and well-being.

4 Stock Market Expansion
General trend in stocks during the 1920s was upward. The value of stocks between 1920 and 1929 quadrupled! Since the market never seemed to go down, people began to act as though it never would. Ordinary Americans began to invest in the stock market. Stock market growth demonstrated the greatness of American business – Harding and Coolidge continued to pass laws that would limit the government interference in business.

5 Election of 1928 Coolidge decided not to run for re-election in 1928, republicans chose Herbert Hoover for the nomination. Hoover had an impressive political record and pledged to continue to support businesses. Elected President in 1928.

6 Economic Weaknesses One of the major weaknesses of the American economy was the vastly uneven distribution of wealth between the rich and poor. The rich were very rich, the poor were struggling (mainly farmers and coal miners). Americans bought many of their consumer goods on credit, by the end of the decade most people reached the end of their credit.

7 Credit and the Stock Market
Americans also bought stock on credit, called buying on margin. Investors would pay off when they sold they stock. Brokers began to require lower and lower margins for stock purchases, giving bigger and bigger loans. Very risky for both investors and stock brokers. Brokers could force investors to repay their loans if the stock’s value fell below a certain point - called a margin call. Federal Reserve System grew concerned at the economic activity of buying on credit, especially within the stock market. Made it harder for brokers to offer margin loans to investors. Corporations started to provide brokers with the cash to make margin loans to investors, the practice continued.

8 The Stock Market Crashes
On Thursday October 24 investors began selling their shares, others also began selling their shares. As everyone sold their shares the stock market began to decline. A group of bankers came together and bought the majority of these stocks to help prevent a decline. Stock market officially crashed on Tuesday October 29, they called the day Black Tuesday.

9 The Effects of the Crash
Effects on Individuals Effects on Banks Investors who had bought on margin were in debt to their stock brokers. They were forced to sell their shares far below what they paid for them. Stock market crash triggered a banking crisis. Many banks had directly or indirectly invested in the stock market. Banks had given loans to the stockbrokers to sell stocks on margin to investors. The banks were also in debt. Many banks went out of business.

10 Effects on Business Effects Overseas
American banks had loaned a lot of money to European businesses and governments to help them after WWI, they now wanted this money back. European businesses and governments did not have the money to pay them back. The United States and other foreign governments started passing high tariffs to protect their own industries. With money scarce banks and investors were unable to provide businesses with the money needed to help industry grow. Consumers also spending less money on goods businesses provided. Many companies had to fire workers.

11 Economic Factors: Poor distribution of wealth, reliance on credit, consumer spending dropped, industry struggled. Financial Factors: Stock market rise in mid 1920s, Buying stocks on credit, Stock prices rise to unrealistic levels. Stock Market Crash

12 Chapter 21 Section 2: Americans Face Hard Times
Main Idea: The Great Depression and the natural disaster known as the Dust Bowl produced economic suffering on a scale the nation had never seen before.

13 The Development of the Great Depression
The stock market crisis turned into the Great Depression. The collapse of banks affected those people who had trusted the banks with their savings. (Today we don’t have to worry about this because we have insurance to protect our deposits) When people may have suspected that the bank might fail they “ran” to the bank to take out their money. Would force the bank to close.

14 Joblessness and poverty severely affected people’s ability to buy food from already struggling farmers. Farmers produced more than they could sell which caused farm prices to shrink. Farmers borrowed money from the banks to buy farm equipment and land. Banks demanded their money back. Farmers unable to pay back their loans were foreclosed on, or when a bank takes over ownership of a property from someone who has been unable to pay their loans.

15 As businesses could no longer sell their consumer products they had to cut off or fire workers.
Unemployment rose to astoundingly high levels – 25% of America was unemployed. For African Americans the rate was even higher – 50%.

16 The Human Impact of the Great Depression
Having a job in the Great Depression meant that you were lucky, for those that were unemployed they knew it meant they would quickly be poor. There were no government programs to provide food or money to the poor. Relied on breadlines or soup kitchens. Most Americans lost their homes, they moved onto the streets creating communities called Hoovervilles. Hoovervilles were a reference to President Hoover who many blamed for the Great Depression. Others became Hobo’s, traveling the country on train lines attempting to find food or work. Most hobos were men, they left behind families they could not support.

17 Most people were ashamed of the poverty that they endured during the Great Depression.
Men were embarrassed that they could not support their family. Rise in suicide rates in the early 1930s. Many people felt that the nation had failed them.

18 Devastation in the Dust Bowl
In 1931 the mid-west experienced a severe drought, became known as The Dust Bowl. Agricultural practices had stripped the land of nutrients and made it very loose. Led to massive dust storms, covered crops and blew into homes . Area that was hardest hit was: Oklahoma, Kansas, Colorado, New Mexico, and Texas. Drought had ruined the farms of many farmers, families just packed up and moved. Travelled along Route 66 to California seeking work in farms and orchards there. Called the migrants Okies, a derogatory word for those moving west.

19 Chapter 21 Section 3: Hoover as President
Main Idea: Herbert Hoover came to office with a clear philosophy of government, but the events of the Great Depression overwhelmed his responses.

20 Herbert Hoover’s Philosophy
Hoover favored a limited role of government in business. Advocated for people to work hard for their money, take responsibility of their well-being - called this rugged individualism. Hoover believed that businesses should form voluntary associations with the government that would make the economy fairer and more efficient – called this plan an associative state. Called conferences with businesses to discuss how businesses and the government could work together. The creation of the Hoover Dam was an associative state project. The federal government provided funding while 6 companies joined to design and build the dam.

21 Hoover’s Response to the Great Depression
Hoover believed that the government should not provide direct aid but rather provide opportunities to help people help themselves. Hoover used these practices when looking for ways to help farmers. He pushed for a set of loans to create and strengthen cooperatives, or organizations that are owned and operated by its members. Idea was that farmers could buy materials needed for their farms at low prices. Hoover continued this practice after the stock market crash to encourage industries not to lay off workers but to become a cooperative – few businesses wanted to cooperate, they were looking out for their own interests.

22 Although against Direct Aid, after the crash of the Stock Market, Hoover urged congress to pass the Reconstruction Finance Corporation (RFC) that would authorize up to $2 billion in direct government loans to struggling banks, insurance companies, and other institutions. Hoover also pushed for the Federal Home Loan Bank that would encourage home building and reduce the number of home foreclosures. In 1930 Hoover signed the Smoot-Hawley Tariff Act that would raise the cost of imported goods for American consumers, making it more likely that they would buy cheaper American goods. European nations responded with high tariffs, limited international trade.

23 The Nation Responds to Hoover
Voters were angry with Hoover for his optimism about the economy – he thought that things would get better. He made statements like “the worst is over” and praised industry for keeping their employees. American’s began to question his compassion, Americans needed direct aid. Congress refused to approve payment to a group of veterans from WWI, veterans then marched on Washington – called themselves the Bonus Army. The marchers were met with violence in Washington, armed soldiers were fighting with unarmed veterans. Hoover opposed paying the Bonus Marchers because of concern with the federal budget – he would have to raise taxes to pay the marchers.

24 Voters blamed the largely republican Congress for the Great Depression, began to vote in more democrats. In the 1932 Election Hoover would have a hard time winning back voters, Franklin Roosevelt would become president.

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