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The great depression

The great depression. Chapter 11. Appearances Versus Reality. APPEARANCES: PROSPERITY. REALITY: ECONOMIC WEAKNESS. Gross National Product (GNP): total value of goods and services produced by a nation ROSE 30% Explosive growth of automobile FEELING of prosperity encouraged spending.

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The great depression

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  1. The great depression Chapter 11

  2. Appearances Versus Reality APPEARANCES: PROSPERITY REALITY: ECONOMIC WEAKNESS • Gross National Product (GNP): total value of goods and services produced by a nation • ROSE 30% • Explosive growth of automobile • FEELING of prosperity encouraged spending

  3. Appearances Versus Reality APPEARANCES: PROSPERITY REALITY: ECONOMIC WEAKNESS • STOCKS: OWNERSHIP IN A COMPANY • If corporation succeeds, value rises • Corporation doesn’t do well, loses value • Stock market performed spectacularly • Attitude was stocks wouldn’t go down

  4. Appearances Versus Reality APPEARANCES: PROSPERITY REALITY: ECONOMIC WEAKNESS • FAITH IN BUSINESS AND GOVERNMENT • Prosperity of 1920s showed triumph of American business • “chief business of America is business” • Calvin Coolidge

  5. Appearances Versus Reality APPEARANCES: PROSPERITY REALITY: ECONOMIC WEAKNESS • HERBERT HOOVER • Elected in 1928 • Impressive record of public service • Businesslike administrator

  6. Appearances Versus Reality APPEARANCES: PROSPERITY REALITY: ECONOMIC WEAKNESS • DISTRIBUTION OF WEALTH: • Small number of people truly prospered • Wealthiest 1% income rose 60% • Most workers saw 8% • 70% of farmers didn’t make enough • Many reaching credit limits • GNP = prosperity • Stocks couldn’t fail • Faith in Business • Herbert Hoover

  7. Appearances Versus Reality APPEARANCES: PROSPERITY REALITY: ECONOMIC WEAKNESS • GNP = prosperity • Stocks couldn’t fail • Faith in Business • Herbert Hoover • CREDIT • People bought stocks on credit • Made prices rise sharply

  8. Appearances Versus Reality APPEARANCES: PROSPERITY REALITY: ECONOMIC WEAKNESS • GNP = prosperity • Stocks couldn’t fail • Faith in Business • Herbert Hoover • BUYING ON MARGIN • Investor wants 100 shares in a company • $10/share = $1,000 • Only pay for a portion • $500 • Borrow other $500 from broker • Pay off loan once stock sold

  9. Appearances Versus Reality APPEARANCES: PROSPERITY REALITY: ECONOMIC WEAKNESS • GNP = prosperity • Stocks couldn’t fail • Faith in Business • Herbert Hoover • BUYING ON MARGIN • As enthusiasm for investing grew, brokers required lower margins for purchases • Gave bigger loans • 1929: buy stock for 10% of cost

  10. Appearances Versus Reality APPEARANCES: PROSPERITY REALITY: ECONOMIC WEAKNESS • GNP = prosperity • Stocks couldn’t fail • Faith in Business • Herbert Hoover • BUYING ON MARGIN • If stock rose to $15, the $1,000 investment would rise to $1,500 • The investor would get back original $500, repay $500 loan, and still have $500 profit • If stock fell to $5/share the sale would only be $500 which would have to be used to sell off the loan. No profit, out original $500 investment

  11. Appearances Versus Reality APPEARANCES: PROSPERITY REALITY: ECONOMIC WEAKNESS • GNP = prosperity • Stocks couldn’t fail • Faith in Business • Herbert Hoover • BUYING ON MARGIN • MARGIN CALL: Broker could force investors to repay loans if value fell • You’re in big trouble if your stock’s value falls

  12. Appearances Versus Reality APPEARANCES: PROSPERITY REALITY: ECONOMIC WEAKNESS • GNP = prosperity • Stocks couldn’t fail • Faith in Business • Herbert Hoover • THE FEDERAL RESERVE • Nation’s central bank • Takes actions and sets policies to regulate nation’s money supply • Keeps economic activity healthy • Unable to keep business from loaning investors money

  13. September 3, 1929 Stock Market reaches it’s high point Many people began to recognize signs of trouble Sales began sagging Rumors spread that big investors were getting ready to take money out of market

  14. Thursday, October 24, 1929 Nervous investors began selling stocks Others noticed increased activity and joined selling Few people willing to buy millions of stocks flooding market, stock market prices plunged, triggering greater panic to sell Toward the end of the day, a number of leading bankers joined to buy stocks to prevent further collapse

  15. Friday, October 25, 1929 Market returned to normal Some stocks gained value

  16. Monday, October 28,1929 Good feelings from Friday gone Market sank like a stone

  17. Tuesday, October 29, 1929 Panic completely overtook the markets Investors dumped more than 16 million shares Affected strongest companies BLACK TUESDAY Stock market lost $16 Billion

  18. 326-327 View image of man with car, read insets Summarize effects of crash in graphic organizer

  19. Great Depression (1929-1941) The MOST severe economic downturn in the history of the US (and the World) 25% Unemployment 5,000 Banks closed Hundreds of Thousands Homeless

  20. Bank Failures Bank runs: nervous depositors rushed to withdraw savings Thousands of Banks closed forever

  21. Unemployment Reaches 25% Businesses go out of business, people lose jobs, stop shopping, more businesses go out of business

  22. Homelessness People lose jobs, houses, possessions HOBOES: homeless who ride the rails looking for work Hoovervilles: pop-up villages of shacks for homeless

  23. Emotional Toll Angry at the banks Shame at losing everything

  24. The Dust Bowl • By 1931 much of the Great Plains were in a drought (period of below-average rainfall) • Dust Bowl • Farmers had cut down all the grass to plant crops • Much of the earth lay bare to the elements • Wind Storms would come up and blow dust for miles • Okies: farmers who fled the Great Plains West to look for work (named after Oklahoma)

  25. Hoover Responds • Rugged Individualism: It’s up to the people to pull themselves up, not the federal government • Hoover Dam: example of how businesses should cooperate • Cooperatives: farmers buy together to get lower prices • Smoot Hawley Act: Raised prices for imported goods (hoped to make Americans buy US goods) • Slowed trade • Raised taxes to balance budget

  26. Franklin Delano Roosevelt (FDR) • Wealthy family from New York • New York Senator • Democrat • Married to Eleanor Roosevelt • Fireside Chats: radio addresses – felt like family • Hundred Days: period of critical government activity where FDR sprung into action

  27. The New Deal – The Three Rs • New Deal: Plan to fix the Economy • Relief: for those suffering effects of GD • Recovery: of the depressed Economy • Reforms: to prevent another GD • Direct Relief: Federal Government directly helping individuals during the Great Depression

  28. New Deal Programs • CCC • AAA • NIRA • PWA • TVA • EBA • NLRB • FHA • CWA • WPA • SEC • FDIC • REA • FSA • SSA

  29. Emergency Banking Act Temporarily closed banks to find problems in banks and fix them Created by the Glass-Steagall Act (first Fireside Chat explained this) Reform

  30. Federal Deposit Insurance Corporation Protected depositors money in case banks closed Reform

  31. Civilian Conservation Corps Gave men 21+ jobs planting trees and building parks Relief

  32. Agricultural Adjustment Act Gave farmers SUBSIDY to plant less to raise prices Recovery

  33. Works Progress Administration Hired artists to document and improve the Great Depression (paintings, pictures, writings, etc) Relief

  34. Tennessee Valley Authority Brought affordable electricity to thousands by building dams and introducing new farming techniques Recovery

  35. Social Security Act Provides a pension to retired workers 65+ Relief

  36. Art & Culture During the Great Depression

  37. Art • Grant Wood: “American Gothic” (1930) • Shows American ideals – hard work, domesticity

  38. Movies • Gone with the Wind (1939) idealizes the South during the Civil War • Wizard of Oz (1939) Teaches young girl that there is “no place like home”

  39. Radio • War of the Worlds October 30,1938 10:50

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