1. “The End of Prosperity”
Chapter 25, Section 1
“The End of
Prosperity”

2. The Roaring 1920s New products became available to consumers
Automobile
Washing machine
radio
Expensive products became affordable to buyers
Assembly line
Installment buying
Laissez faire economics
Fewer regulations on businesses
Stock prices soared

3. Stock Prices Soared In 1920s, prices in the stock market kept rising
Speculation: Buying & selling of stocks in hope of making quick profit
Buying on Margin: Pay a small part of the stock’s price as down payment, then borrow the rest. Then…sell the stock, repay loan, keep profit
Stock values and skyscrapers
soared in the 1920s in New York

4. Buying on Margin Scenario
You want to purchase $100 worth of stock
You only have $20 – so you borrow the rest from the bank ($80)
The stock goes up 40% (which happened frequently during the 1920s)
Your $100 turns into $140
You must pay the bank back your loan (80 X .10) = 8 (plus the original 80) = 88
You are left with a net profit of $32 ( ), with only putting in $20 of your own money

5. The “Crash” of the Market
Stock prices were drifting down after a peak in the summer of 1929
Those who bought on margin needed to sell stocks fast
October 29, 1929 : Black Tuesday – investors sold 16.4 million shares of stock
Stocks lost 1/3 of their overall value in a few weeks

6. After the Crash
Banks were failing (going out of business) – so people lost their life’s savings
People also became scared about their money and:
Feared putting it in banks
they didn’t purchase much anymore
Businesses sold less and less
Businesses forced to lay off workers, and some businesses went out of business
People without jobs were unable to pay bills and they bought even less
The combination of all of these factors leads to the Great Depression

7. The Business Cycle
The business cycle is a pattern in U.S. history where the economy goes up and down repeatedly
When business produce more than they can sell then goods pile up, and businesses then cut back production and lay off workers
Laid off workers (and those fearing the bad economy) buy fewer goods causing businesses to fail
This slowing of the economy (amount of products produced by the nation) is called a recession
A longer and deeper recession is called a depression
When consumers buy up surplus goods and businesses can increase production and hire back workers the economy recovers (and people begin to buy more as they are more confident in the economy being strong)

8. The Business Cycle

9. The Causes of the Great Depression
Overproduction of goods
Farmers
farmers produced too much, leaving them with surpluses
This overproduction drove their prices down (and profits)
Industry
businesses were producing more consumer goods than people were consuming
assembly line increased production

10. The Causes of the Great Depression
Overvalued Stock Market
Banks and customers who bought stocks on margin drove up stock prices too high
Individual Consumer Debt Too High Installment buying
Installment buying helped people buy products they couldn’t afford
When they built up too much debt people stopped buying more products
People outside the New York
Stock Exchange in 1929

11. The Causes of the Great Depression
Uneven Distribution of Wealth
The wealthiest 20% of the population held 80% of the nation’s wealth
Incomes rose 75% for the wealthiest 20%, and only 9% for everyone else
Over 60% of the population made less than $2500 (and were living below the poverty line)
The average person didn’t have enough money to keep buying to keep the economy booming

12. People Looked for Help
From private charity groups who ran soup kitchens and bread lines
Many searched garbage and city dumps for food
Still many were starving
They then looked to the federal govt. for help
They didn’t get it from President Hoover

13. Balanced federal budget by cutting govt
Balanced federal budget by cutting govt. spending and raising taxes (which made the economy worse)
He didn’t believe in giving direct aid to the poor (should come from private businesses and individuals)
Hoover also believed…
“Prosperity was just around the corner”
“Rugged Individualism” – people should succeed through their own efforts; not depend on gov’t bailing them out
People should “pull themselves up by their own boot-straps”
Hoover’s Response

14. Hoover was Blamed for all of the Problems
Hoovervilles
Hoover blankets
Hoover flags

15. Hoover’s Successes
Eventually Hoover began some public works projects – Gov’t funded projects to build resources such as roads/dams
These created jobs, but was too little, too late
Boulder Dam (AZ/NV), now called Hoover Dam, still provides electricity to several western states
Reconstruction Finance Corp. loaned $1.2 billion to banks and farmers’ mortgage companies to keep them open in 1932

16. The Bonus Army
WWI soldiers were due payment in 1940 – but those who were unemployed wanted it early
Around 17,000 soldiers went to Washington and set up camp to protest
When the US Senate voted to not pay their bonuses early, most veterans left, but around 2,000 remained
Gen. MacArthur and Army use tear gas & bayonets to drive them out and a few people died in the process

17. Election of 1932 President Herbert Hoover (Republican)
Warned the nation that govt. aid programs would weaken Americans’ spirit of self-reliance and would be too expensive
Hoover was blamed for the bad economy, his slow reaction to help people, and for the treatment of the Bonus Army

18. Election of 1932 Franklin D. Roosevelt (Democrat)
As Governor of New York he took active steps to provide aid to farmers and the unemployed
People believed he would try to do the same for the whole nation as President
FDR won in a landslide