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Definitions

Definitions. Credit – buy now and pay later in installments “Bull Market” – rising stock prices “Bear Market” – falling stock prices Speculation – risky transactions for chance of considerable profit. America’s Darkest Hours. The Great Depression. Trouble Looms.

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  1. Definitions • Credit – buy now and pay later in installments • “Bull Market” – rising stock prices • “Bear Market” – falling stock prices • Speculation – risky transactions for chance of considerable profit

  2. America’s Darkest Hours The Great Depression

  3. Trouble Looms • Gap between haves and have-nots widening • Basic industries in trouble • Textiles, Steel, Railroads, Coal, etc. • New forms of transportation • Foreign competition • 1920s boom industries weaken • Autos, construction and consumer goods • New building permits down 25% Haves Have Nots

  4. Farmers • WWI wheat & corn prices soared • Took out loans to buy more equipment and land • After WWI, prices fell 50% • Banks foreclosed when could not repay • Many rural banks failed

  5. Government buys surplus grain • - Above market price • Government sells surplus on world • market • - Below market price McNary-Haugen Farm Bill • Tax domestic food sales to make • up the difference

  6. Consumers • Incomes fell, less money to spend • Stagnant wages • Unbalanced distribution of income • Overbuying with credit

  7. The Numbers • ½ of US families earned less than $1,500/year • Income of wealthiest 1% • rose 75% • Took in 33% of nation’s income • Average income up 9% • Lowest 40% took in 10% of national income

  8. 1928 Election • Alfred E. Smith • Democrat • 4 term Gov of NY • Career politician • Witty and outgoing • Roman Catholic • Opposed Prohibition • Won 42% of popular vote and 87 electoral votes • Herbert Hoover • Republican • Sec of Commerce • Mining engineer • Formal and reserved • Never run for public office • Won 58% of popular vote and 444 electoral votes • Both from poor families • Both worked hard for their success

  9. Stock Market Crash • 1929 – economists warn of weaknesses • Dow Jones Industrial Average visible symbol of economy • “Bull Market” • 3% of US owned stocks (4 million) • Speculation led to wealth on paper • Real worth was not equal to dividends paid

  10. Investors • Bought on margin • Up to 75% of stock price • OK when prices rising • Bad when declining • Could not pay debts • Average Americans trying to get rich quick • Wealthy hoping to increase their worth

  11. Timeline of Disaster • Sept 1929 – stocks peaked then declined • Oct 24th – stock plunge • Oct 29th – BLACK TUESDAY • Dow fell from 381 to 81 • 16 million shares dumped (record) • Investors frantically sold • Mid-Nov - $30 Billion lost by speculators and investors

  12. Results of Causes • Falling demand for consumer goods • Mechanized factories produced more • Federal Government kept interest rates low • Borrow money easy • Build up large debts • Little regulation of markets and speculators • Hoover in denial

  13. Financial Collapse • People panicked and withdrew money from banks • Banks lost due to investments too • 1929 – 659 failed • 1933 – over 6,000 failed (1/4) • No federal insurance to protect people • 9 million savings accounts gone

  14. Macroeconomics • 1929 – 1932 • GNP cut in ½ ($104 down to $59 Billion) • Ex. Railroads and auto companies failed • Unemployment • 1929 – 3% (1.6 million workers) • 1932 – 25% (13 million workers) • Companies made pay cuts and reduced hours

  15. Worldwide Shock Waves • 1920s Europe suffered due to high debts • German war reparations • Destruction from WWI • US limited export goods to Europe • Difficult to sell farm and manufacturing products to Europe from US

  16. Hawley-Smoot Tariff Act • Protect US from foreign competition • Backfired • Reduced goods coming in • Europe prevented from earning US currency to pay for US goods • US trade abroad reduced

  17. Europe’s Reaction • Retaliated with own tariffs • World trade down 40% • Took selves off gold standard • Gold of less value • Bought US goods with cheaper currency • Reparations paid in cheaper currency

  18. Expert Opinions • Depression normal part of business cycle • Do nothing, fix itself • Treasury Secretary, Andrew Mellon “let the slump liquidate itself. Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate….It will purge the rottenness out of a system.”

  19. Hoover’s Philosophy • Economy allowed to function with minimal government intervention • Government could help solve problems • Limit role and prevent government from taking too much power • Believed reason could solve all problems • “rugged individualism”

  20. Examples • Government help business and labor find mutual solutions • People take care of selves and families • Do not depend on government • Opposed federal welfare or direct relief • Weaken self-respect • Stifle individual liberties

  21. Cautious Steps • Call industry leaders to find solutions • Employers not cut wages or lay off workers • Labor not demand higher wages or strike • Specific organizations to help charities generate contributions for poor • Made no difference

  22. 1930 Congressional Elections and Frustration • Democrats won more seats • Republicans lost majority in House of Reps • Rep kept majority in Senate by 1 seat • Farmers burnt crops, milk on highways, etc. • Shantytowns – Hoovervilles • Empty pockets hanging out – Hoover flags • Public saw Hoover as cold and heartless

  23. Hoover Takes Action • Federal funds to projects ($800 million) • Public works programs • Large projects • Stimulate business and jobs for unemployed • Federal Farm Board • Prop up crop prices • National Credit Corporation • Big banks loan to smaller banks

  24. Appealed to Congress • Bank reforms • Mortgage relief • 1933 – Glass-Steagall Banking Act • Bank reforms • Federal Home Loan Bank Act • Reconstruction Finance Corporation • $2 Billion in financing for big business • Trickle down theory

  25. Bonus Army • 10,000 to 20,000 WWI Veterans • Wanted bonus payment due in 1945 • Hoover opposed, gave food & supplies • Bill failed, Vets asked to leave, refused • Sent in the Army • Public outraged, image suffered • Franklin D. Roosevelt won 1932 election

  26. America’s Greatest Challenge • Write a paragraph describing the situation America was in at this point. • What choices did we have? • What choices did we make? • What programs were used to implement this choice? • What effects do we have today due to the choices made by this generation before us?

  27. Definitions • Buying on Margin – pay small % as down payment and borrow the balance • Dow Jones Industrial Average • Stock price of 30 representative large firms on NYSE • GNP – Gross National Product • Nation’s output of goods and services

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