USHC- 6.3a

1. USHC- 6.3a • Explain the causes and consequences of the Great Depression, including the disparities in incomes and wealth distribution; the collapse of the farm economy and the effects of the Dust Bowl; limited government regulation; taxes, investment; and stock market speculation; policies of the federal government and the Federal Reserve System; and the effects of the Depression on the people.

2. Introduction • ***The 1920’s seemed prosperous with high employment rates and little or no inflation • Industrial production and per capita income were both up, however, this was false prosperity. • Disparity in incomes and the distribution of wealth was very large and uneven • ***A great majority of Americans lived below the poverty line ($2500 in 1929) • Wages for most workers fell or stayed constant for most of the 1920’s • ***Companies did not pass their prosperity to their workers, and they could not afford to purchase the goods they manufactured. • When consumers reached the limit of their credit, they had to stop spending. • ***The drop in consumer spending led to layoffs and furthered the inability for workers to spend. This started a downward spiral for the economy

3. Farmers in the 1920’s • Farmers had done well during the WWI years. • New machinery allowed them to produce more, but this resulted in overproduction and agricultural prices dropped drastically in the 1920’s. • ***Coolidge vetoed all farm aid bills and as a result many farms went bankrupt or were foreclosed. • ***Because the banks did not get paid back, many of them failed which limited the number of loans available for small business. This kept them from expanding and hiring.

4. Origins of Stock Market Crash • Under the Republican administrations, the federal government limited regulations on big business that it started with the “trustbusting” Teddy Roosevelt • Corporations became increasingly powerful, the tariff was raised, and the Supreme Court overturned limitations on child labor and minimum wage for women • ***Income taxes for the wealthy were slashed, but this did not help the economy • ***Much of their tax savings were invested in the stock market instead of new factories

5. Black Tuesday - The Great Crash • ***Stock speculation- high risk investments and hoping for a large return. • ***Buying on margin- paying only a small percentage of what the stock is worth and taking out loans to cover the rest. • ***The Great Crash- October 29th, 1929 • ***The country panics and races to get their money out of the stock market by selling their stock. Banks call in their margin loans. • ***In a single day losses totaled over $30 billion dollars. • ***This marks the beginning of the Great Depression. (just signaled the beginning…did not cause the Depression!)

9. The Federal Reserve • Early in the 1920’s, the Fed pursued easy credit policies • By charging low interest rates to its member banks, the Fed helped fuel speculation mania in the stock market • In the late 1920’s, the Fed initiated a tight money policy in an effort to curb stock market speculation • By charging higher interest rates for loans, the Fed discouraged lending. • After the crash, they continued to increase interest rates, thus, limiting the supply of money • If the Fed would have cut the interest rates and expanded the money supply, the depression may not have been as intense or long lasting

11. President Hoover’s/Government Policies • Government policies did little to halt the downward spiral of the economy • Congress passed a very high tariff in 1930 that further hurt the economy by depressing international trade • Other countries could not sell their goods in US markets, and they in turn could not buy US goods. • In reaction to our policy, other countries imposed their own trade barriers which made the world wide depression worse • And still Hoover told the American people that “prosperity is just around the corner”