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The Great Depression . Causes and Impact. What is a depression?. A period of severe reduced economic activity Sharp rise in unemployment Decrease in consumerism due to unemployment The October 29 th , 1929 was not the only depression the US suffered but it was by far the very worse.
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The Great Depression Causes and Impact
What is a depression? • A period of severe reduced economic activity • Sharp rise in unemployment • Decrease in consumerism due to unemployment • The October 29th, 1929 was not the only depression the US suffered but it was by far the very worse.
Stock Market Crash - 1929 • #1 Margin Buying • Speculators bought on margin • Borrowed $ from stockbrokers • Stock became collateral • When stocks increased speculators sold the stock, repaid broker & profited • When stocks began to decline brokers called in stocks • When speculators couldn’t repay the loan brokers sold the stockbrokers called in their margins
#2 Overproduction • AKA “plague of plenty” or “great glut” of farm & factory goods • Nation’s ability to produce surpassed its ability to consume • Profits of big business went to wealthy who reinvested in factories rather than raising salaries & wages which would have stimulated more consumerism • Installment & credit also encouraged overproduction while new technology added to unemployment
#3 International Economic Problems • Remember the Dawes Plan? When US banks were lending Germany $ so it could pay reparations to Allies & speed recovery of the postwar economy. • During the “bull market” when stocks were increasing banks stopped loaning as much $ to Europe and loaned it instead to brokers who were selling stocks on margin. • This decreased international trade • Followed by high US tariffs • Contributed to more underconsumption
#4 Restrictive Monetary Policy • The Federal Reserve System which is responsible for regulating the amount of money in circulation followed a restrictive policy that dried up credit. • Tightened the money supply
#5 Depressed Farms & Industries • Major industries laid off workers in ’20s • Less $ to consume projects
Who Was Hurt by the Depression? • Speculators & long term investors • Overnight they went from millionaires to paupers – in a few months stock prices fell 75% • Joke at the time about guests checking in at a home “For sleeping or jumping?” • Regular “innocent” people who put their savings in banks. • Banks had lent $ to brokers, when margins weren’t repaid they lost everything • Banks were not insured at the time like today
Hoover’s Initial Response • His response was consistent with Republican philosophy – minimal gov interference in the economy • However…. • Asked business leaders for a pledge not to cut wages or production of goods • Suggested that city & state govs fund bldg projects • Agric Marketing Act & Farm Board (?) • Farmers lost their mortgages
Depression Worsens • 1929 23,000 businesses failed; 32,000 in 1932 • Average income in 1929 was $2300 reduced to $1600 by 1935 • Unemployment in 1929 was 5% and rose to 25% by 1932 • Bread lines, soup kitchens, Hoovervilles • Brother Can You Spare a Dime? Yip Harburg
Too Little Too Late • Hoover reluctantly agrees to intro new gov programs. • Reconstruction Finance Corp – largest fed’l program ever at that time • Authorized to dispense $2 billion – supposed to have trickle-down effect • Emergence Relief Act - $300 m to states on verge of bankruptcy • Neither successful
Bonus Army 1932 • Veterans of Great War were promised a bonus payment in 1945 • Veterans organized the march to lobby for early payment • Very well disciplined & organized • Agreed to honorable code of conduct • By the time they reached DC there were 1700 • Senate rejected the bill
Aftermath • Most veterans returned home • About 2000 remained • Hoover dispatched Douglas McArthur & his aide Eisenhower to force veterans out • Cavalry, infantry, tanks, machine guns were present • Torched the “Hoovervilles” • 100 people injured • 1 Child killed from tear gas
Impact of the Bonus March • Political suicide for Hoover – seen as bully • “Nailed his coffin shut” • Press commented “What a pitiful spectacle that the American Government, mightiest in the world, chasing unarmed men, women and children with Army tanks.”
