Boom Turns to Bust: The Great Depression

1. Boom Turns to Bust:The Great Depression Focus Question: How did the prosperity of the 1920s give way to the Great Depression?

3. Free Market Business Cycle

4. The Twenties: Endless Prosperity? • Consumption goes up • Gross National Product (GNP) goes up • Stock Market goes up • Times were good in America • Republican Presidents Harding & Coolidge took the credit • In 1928, Herbert Hoover elected President

5. Underneath the Glitter, All Was Not Gold • Agricultural Sector Hurting Badly • Farmers ¼ of the total U.S. work force • To meet increased food production needs in WWI, farmers had bought land & farm machinery • With decreased demand, farmers struggling: Rural depression

6. Causes of the Depression:Prosperity Built on Cars & Construction • Most of economic growth in country based on two industries: automobiles & construction • By 1928, market for cars saturated • Construction bubble “pops”!

7. Causes of the Depression: Unequal Distribution of Wealth • Despite apparent prosperity of the 1920’s, 50% of the U.S. population lived on a subsistence income • 1% of Americans controlled 40% of the country’s wealth

9. Causes of the Depression: Easy Credit • Expansion of credit partially hides the problem: installment plan • 80% of radios & 60% of cars bought on installment plan • Americans accumulate more debt • When economy tanks, Americans in serious trouble

10. Causes of the Depression: Stock Speculation • Related to the credit crunch was the habit of “buying on margin” • Soaring stocks made the stock market seemed like an easier way to make money than savings accounts • When market crashes, people lose everything!

11. Causes of the Depression: Reparations & War Debts • Versailles Treaty mandated Germany pay “reparations” $$$ to Britain & France • Germany could not afford them and borrowed money from U.S. • England and France owed money to U.S. and paid their debts to U.S. from reparation payments • U.S. continues loans to Germany What will happen when economy goes South?

12. Causes of the Depression: High Tariffs Smoot-Hawley Tariff Act increased tariffs on imports to the U.S. by up to 50%. This tariff made the depresssion the Great Depression Put into law in June 1930 by the Republican Congress (That would be at point A on the GDP chart.) Smoot-Hawley was indeed bad. Other countries followed the U.S. tariff policy and U.S. exports to them contracted. The U.S. GDP went down further

13. The Stock Market Crashes • Black Tuesday: October 29, 1929 • Billions of dollars lost • People who bought on margin lost everything they had Black Tuesday provides the spark for the Great Depression: 1929-1940 http://www.youtube.com/watch?v=DXFAf-V9Qpk&safety_mode=true&persist_safety_mode=1&safe=active

14. Cities Devastated • Banks Collapse • Factories Close; unemployment grows • Misery & Despair; Middle-class men hit especially hard • Brother Can You Spare a Dime http://www.youtube.com/watch?v=4F4yT0KAMyo

15. Rural Areas Suffer • Crop Prices fell further: in 1919, a bushel of wheat sells for $2.16; in 1932, $0.38 • Farmers lose 1/3 of their income • Nearly one million farmers lost their farms between 1930-1934 • Environmental disaster: Dust Bowl of the 1930’s http://www.youtube.com/watch?v=vkpKRxR9rA8