Crash and Depression

1. Crash and Depression Chapter 15 1929 - 1933

2. Setting the Scene • October 29, 1929 • CRASH!

3. The Market Crashes • NOTE: A stock’s value SHOULD be based on the company’s earnings and assets. • BUT: Demand and speculation can make a stock price go up even more. • Think of auctions

4. The Market Crashes • Leads to OVERVALUED stocks. • Then, if you borrowed money to get the stock … • CRASH

5. Example: • The value of the swan beanie baby is $5. • BUT you’ve seen these go on eBay for $150. • The price is $150 for the beanie baby swan. Others go for even higher. • You borrow $150 from a bank to buy the beanie baby. • 20% interest ($30) total $180.

6. Example • You have a $180 beanie baby. • What happens when people no longer want to pay that much? • The price goes down to $5? • YOU ARE BROKE and OWE MONEY!

7. October 29, 1929 • THAT is what happened to ALL stocks. • Investors lost money • Businesses lost profits • Workers were laid off • Banks who had loaned money failed when people couldn’t pay back their loans.

8. October 29, 1929 • Because investors were consumers – they had NO money to buy things. • Businesses couldn’t sell products. • Laid off workers. • Who couldn’t buy things then. • Businesses failed.

9. Black Tuesday: October 29, 1929 • To stop the panic of Thursday, bankers pooled their money to buy up stocks to make things look stable for Friday and Monday

10. October 29, 1929 • Because investors couldn’t pay loans back to banks .. • Because businesses couldn’t pay back loans to banks • Because banks had also been speculating on the stock market with savers’ money …

11. October 29, 1929 • Banks are rumored to be failing • Bank runs to try to get money out of banks. • But THERE WAS NO MONEY! • BANKS FAIL and close.

12. October 29, 1929 • Because Americans have no money to invest • Global investments fall • Unemployment happens in other countries • The rest of the world can not afford US goods • Europe can’t pay off their war debts to US businesses • Closes more US factories

13. People asked “How did this happen?” • Black Thursday: • Some banks and brokers began to call in loans after stocks began to fall in value. • People who had bought General Electric at $400 had to sell for $283. • In one day $3,000,000,000 was lost!

14. Black Thursday: October 23, 1929 • 4 – 8 million shares of stock were sold. • Reassurances from stock specialists and the President. • “The nation’s business is on a sound and prosperous basis.”

15. October 29, 1929: The Great Crash • It wasn’t enough! • Tuesday – people panicked. • 16 million shares were sold. • When there is more supply than demand • PRICES GO DOWN, DOWN, DOWN, DOWN

16. October 29, 1929: The Great Crash • Overall losses $30,000,000,000 • The business cycle – a period in which the economy grows then contracts.

17. The Ripple Effect of the Crash • Someone who thought and lived like they had a million dollars • Found out they only had $100.

18. Ripple Effect on the Economy • Risky loans hurt banks • Banks earn their profits on the interest they earn for loaning out money. • Gave out HUGE amounts of loans on very risky loans.

19. Ripple Effect for the economy • Consumer borrowing: • Banks also make money on loans they make to consumers to buy cars, appliances, etc. • Consumers lost money and / or their jobs and could not pay their debts to the bank.

20. Ripple Effect on the Economy • Bank Runs: • People rushing to the bank to get their money out. • Banks didn’t have enough money in the vaults to give people withdrawing. • Banks had to call in loans to get some money. • Consumers and businesses did not have the money

21. Ripple Effect on the Economy • Savings wiped out • By 1933 9 million savings accounts had vanished.

22. Ripple Effect on the Economy • Cuts in Production • Businesses had no money to keep producing goods. • Few people had the money to buy goods.

23. Ripple Effect on the Economy • Rise in unemployment • Businesses laid off workers.

24. Ripple Effect on the Economy • Further cuts in production as unemployment grew and incomes shrank, consumers spent less and less money and businesses produced still fewer goods.

25. Economic Contraction • An economic decline marked by falling output of goods and services. • THE GREAT DEPRESSION • Lasted until 1941

26. The Great Depression: Impact on Workers and Farmers • August 1931 – Ford closed its Detroit factories. • 75,000 unemployed in one day. • Millions others unemployed.

27. The Great Depression: Effect on Workers and Farmers • Because large factories closed – small businesses and restaurants began to fail too. • No customers • No merchandise • Rich people laid off staff

28. The Great Depression: Effect on Workers and Farmers • Farm prices that were already low, fell even more. • 1929: 1 bushel of wheat was $1.18 • 1932: 1 bushel of wheat went for 42 cents • DISASTER FOR FARMS

29. The Great Depression: Underlying Causes • Unstable economy • Overspeculation • Optimism was more than real value for goods. • Government policies • Too late, the government in 1929 tried to stop the overspeculation. • Only made it worse.

30. Hoovervilles • How did people “get by”? • Houses with extended families. • Drifted as hobos, migrant workers • Shantytowns “Hoovervilles”

31. Hoovervilles

32. Depression’s Effect on Health • “No one has starved.” • President Hoover

33. Effect on Health • But some did. • Thousands went hungry. • Poor, hungry and without shelter – more prone to illness. • Particularly children.

34. Impact on Health • In the country, people grew food. • Used for food and to barter for other goods. • In the cities, sold apples and pencils. • Begged for money and food. • Fought over restaurant garbage.

35. Stress on Families • Men felt like failures for not providing for families. • Women were often fired for “taking” jobs from men. • Particularly if married • Women took low-paying jobs as domestics.

36. Discrimination Increases • Times created hostilities against minorities. • Whites were willing to take the low wages of Asian-Americans, Hispanics and African-Americans. • Mass deportation of Mexican-Americans – even though they were born in the USA!

37. Discrimination Increases • The Scottsboro Boys • Nine African-American boys riding the rails were accused of raping two white women in Scottsboro, Alabama in 1931. • Eight were sentenced to die. • YEARS before their convictions were overturned.

38. President Hoover’s Response? • Said if Americans had “confidence” things would get better. • Blamed other countries not the American economy. • Tried to tell people the factories would quickly reopen.

39. President Hoover’s Response • Voluntary Action • Let volunteer organizations like church charities and local governments help people. • It wasn’t Washington’s job to support and help people.

40. President Hoover • After 1931, he did try SOME federal programs to help people – but it wasn’t enough. • Hoover thought government aid would cause people to lose their self-respect.

41. Veterans March on Washington • 20,000 WWI vets and their families came to Washington to try to claim “bonuses” the federal government had promised to pay in 1945. • They needed the money in 1932!

42. Bonus Army • Most were peaceful. • Hoover called in the army to drive the marchers’ out of Washington DC. • General Douglas MacArthur used force. • Many were injured by gunfire, tear gas, fire.

43. Election of 1932 • Republican: Herbert Hoover • Democrat: Franklin D. Roosevelt • Who do you think won???

44. Election of 1932 • Electoral Map