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Unit VIII – Boom Times and Challenges Chapter 25 – The Great Depression Section 1 – The End of Prosperity The End of Prosperity The Big Idea The collapse of the stock market in 1929 helped lead to the start of the Great Depression. Main Ideas • The U.S. stock market crashed in 1929. • The economy collapsed after the stock market crash. • Many Americans were dissatisfied with Hoover’s reaction to economic conditions. • Roosevelt defeated Hoover in the election of 1932. The Calm Before the Storm Good times for everyone? 1922-1928- GNP rose by 30%- this led to a feeling of optimism and reckless activities. Automobile industry growth- 1 on 5 Americans owned a car in 1929 and auto related industries were booming. Corporation profits were on the rise. Unemployement was very low. Union membership dropped as employers gave out more benefits (welfare capitalism) Workers purchased new products, went to theaters, sporting events and other leisure activities. Stock Market Expansion "When the average Joe Stock Market- where stocks are bought and sold. Public starts entering Stock- ownership in a company. the market en mass, Successful corporation means value of then a crash is stocks rise. (up and down) imminent....". False sense of security Stock Market had been booming for a decade. Corporate profits were soaring. Unemployment was low. Employee benefits and buying power was up. Between 1920-1929- value of stocks quadrupled. This encouraged more investors, who borrowed more money(on margin), which increased the number of shares traded and caused the price of stock to go up. The Appearance of Prosperity Strong Economy Strong Stock Market Between 1922 and 1928 the U.S. gross The stock market, where people buy national product, or total value of all stocks, or shares, in companies, goods and services, rose 40 percent. performed very well in the 1920s, with Though farmers and some other workers stock values sharply increasing each didn’t benefit, the overall economy month. performed well, especially for automakers and those who made auto parts. The value of stocks traded quadrupled over nine years. Overall unemployment remained low, averaging around five percent between The steep rise in stock prices made 1923 and 1929. people think the market would never Union membership slowed as employers drop, and more ordinary Americans expanded welfare capitalism programs, or bought stocks than ever before. employee benefits. The number of shares traded rose from This feeling of prosperity encouraged 318 million in 1920 to over 1 billion in workers to buy new products and enjoy 1929. leisure activities such as movies. Business leaders said everyone could get rich from stocks. Faith in Business and Government 1920’s Prosperity= triumph of business Republicans Harding, Coolidge and Hoover Pro-business policies gave business maximum freedom. ―The chief business of America is business‖- Coolidge Hoover was a business like leader- great for a prosperous nation. People may have thought too highly of Hoover. (pedestal, superman?) Main Idea 1: The U.S. stock market crashed in 1929. 1920s stock market was a bull market, or one with rising stock values. Many people began to buy stocks. Some who could not afford the stocks’ full price began buying on margin, or purchasing stocks on credit. Few considered what might happen if the bull market turned into a bear market, or one with declining stock prices. Stock prices peaked in the summer of 1929. Prices started to drop. Frightened investors rushed to sell their stocks in order to pay off their loans. Credit and the Stock Market Investors increasingly used credit to buy stocks as the market rose. Buying on Margin The Federal Reserve • Investors were buying on • The board of the Federal margin, or buying stocks with Reserve, the nation’s loans from stockbrokers, central bank, worried about intending to pay brokers back the nation’s interest in stock when they sold the stock. and decided to make it • As the market rose, brokers harder for brokers to offer required less margin, or margin loans to investors. investors’ money, for stocks and gave bigger loans to investors. • Their move was successful, until money came from a • Buying on margin was risky, new source: American because fallen stocks left corporations who were investors in debt with no money. willing to give brokers • If stocks fell, brokers could ask money for margin loans. for their loans back, which was called a margin call. • Buying continued to rise. The Stock Market Crash :27 min. Black Tuesday In September 1929, total value of all stocks was $87 billion. • On Thursday, October 24, panic hit the stock market. – Within three hours the market lost $11 billion in value. • On Monday, October 28, prices dropped again. • On Tuesday, October 29, the stock market crashed. – So many people wanted to sell their stocks, and so few wanted to buy, that stock prices collapsed. – Became known as Black Tuesday By November 1929, $30 billion in stock value had disappeared. Black Tuesday (05:06) The Stock Market Crashes Identify – By what name did the day the stock market crashed become known? Recall – When the market crashed, what did most stockholders want to do with their stocks. Evaluate – If you owned stock, which type of market would you want, bull or bear? Why? Main Idea 2: The economy collapsed after the stock market crash. Banking crises after the stock market crash Banks lost heavily on their investments. Customers unable to pay back bank loans Some banks went out of business, and people who had deposited their savings in those banks lost everything. Public panic followed Customers rushed to banks to withdraw their money. Banks ran out of money. More banks closed– in 1931 alone, 2,200 closed. Effects on business Some lost their savings and were forced to close. Others forced to cut back production resulting in loss of jobs. Unemployment soared to more than 4 million workers. Effects of the Crash Impact on Individuals Effects on Banks Though some thought the market The crash triggered a banking would rally, countless individual crisis, as frightened depositors investors were ruined. rushed to withdraw their money, draining the bank of funds. Margin buyers were hit the hardest, because brokers demanded they pay Many banks themselves had back the money they had been invested directly or indirectly in the loaned. stock market by buying companies’ stocks or by lending brokers money To repay the loans, investors were to loan to investors on margin. forced to sell their stocks for far less than they had paid, and some lost When investors couldn’t repay their entire savings making up the margins, banks lost money, too. difference. These failures drove many banks In the end, many investors owed out of business. enormous amounts of money to their brokers, with no stocks or savings left to pay their debts. Effects of the Crash Effects Individuals Cause Stock Market Crash Effects of the Crash Effects on Individuals Investors ruined, huge fortunes disappeared Margin buyers- had to pay back the margin call to brokers and sold for less then they paid. Causing loss of savings and still owed money. Effects of the Crash Effects Individuals Cause Banks Stock Market Crash Effects of the Crash Effects on Banks- crash triggered a bank crisis Runs on the banks to get deposits out Banks had made investments themselves in the stockmarket- these are now losses Loans to stockbrokers became losses. Some banks run out of business. Effects of the Crash Effects Individuals Cause Banks Stock Market Crash Business Effects of the Crash Effects on Business- money scarce, banks and investors unwilling or unable to provide the money for business to grow and expand. Consumers cut back spending and companies began to lay off workers. Unemployed workers make less money, less purchases and companies again lay off. Wages dropped by over $4 Billion. Consumers stopped spending. Effects of the Crash Effects Individuals Cause Banks Stock Market Crash Business Overseas Effects of the Crash overseas- began in U.S. but Effects rippled over seas. U.S. banks called in loans to foreign countries crippled from WWI. Foreign countries exported less to U.S. due to low buying power there. And foreign companies began to lay off workers. Governments around the world raised the tariffs on imports to protect their industries. The Economy Collapses Recall – What two things caused banks to close? Explain – How did people lose their life savings? Identify Cause and Effect – How did the stock market crash affect banks and businesses? Causes of the Great Depression Business cycle – the rhythm in which an economy expands and contracts its production The economy did not recover quickly from the downturn that began in 1929. Unemployment rose and businesses failed. Became known as the Great Depression because of its severity and length • Government’s monetary policy • Overproduction– American businesses were producing far more goods than people were consuming. • Uneven distribution of wealth– millions of Americans did not earn enough to afford expensive new products. • Declining world trade– Europe, still recovering from the war, could not afford to buy American goods or to pay the high tariffs required to sell their own goods in the United States. The Economy Collapses Recall – What was the national employment rate before and after the stock market crash? Identify – What percentage of Americans earned 1/3rd of all income? Elaborate – How did World War I affect the American economy? What did Hoover do? Traditional Approach to a depression- Cut Government Spending and let the Depression burn it self out- this will get rid of the rottenness in the system. Hoover did not sit still He called on states, cities, and all private charitites to feed the hungry. Brought business and labor leaders together. Cut his own salary by 1/5th Cut taxes- did little good Public works jobs. Hoover’s Response to the Great Depression Hoover’s core beliefs—that government should not provide direct aid, but find ways to help people help themselves—shaped his presidency. Ideas and Beliefs Direct Action • Before the market crash, • Businesses cut jobs and Hoover tried to help farmers wages, and state and local by strengthening farm governments cut programs cooperatives. and laid off workers. • Cooperative: an organization • The crisis persuaded Hoover owned and controlled by its to go against his beliefs and members, who work establish the Reconstruction together for a common goal Finance Corporation in 1932, a program that provided $2 • After the crash, Hoover billion in direct government continued to believe in aid to banks and institutions. voluntary action, and he urged business and • Later that year he asked government leaders not to Congress to pass the Federal lay off workers, hoping that Home Loan Bank, a program their cooperation would help to encourage home building. the economic crisis pass. Herbert Hoover (06:49) Main Idea 3: Many Americans were dissatisfied with Hoover’s reaction to economic conditions. President Hoover did not believe it was the federal government’s role to provide direct relief. Created Reconstruction Finance Corporation that loaned $1.2 billion to financial institutions Resisted giving direct assistance to individuals Americans were angry at the lack of government response. Hoovervilles, or groups of tin and cardboard shacks, were built. Bonus Army of war veterans built a Hooverville in Washington, D.C., and demanded early payment of a military bonus. Hoover authorized use of force to scatter the veterans, resulting in some deaths. Public was outraged. President Hoover vs. World War I Vets (03:03) Nation’s Response to Hoover Losing favor Hoover was optimistic- but the worst was yet to come. He still refused direct aid. But he did give aid to banks and businesses but not individuals. Bonus Army- 15,000 set up camp 1932- WWI Veterans march on Washington to demand their bonus $1.25 for each day overseas- to be paid in 1945 They need the money now Hoover sent out the troops to clear them out- Violence Voter Reaction- 1930 Republicans began to lose seats in Congress. Hoovervilles "Hoovervilles" sprang up across America in the 1930s. They took their name from President Herbert Hoover who was in office when the Great Depression began. "Hoovervilles" were clusters of shacks where destitute people had to live. They were made up of packing crates, abandoned cars, and other cast off scrap. They were shanty towns that were located outside of major cities. The Hoover Administration Well- meaning but Ineffective Relief for the Poor •Believed in private charity to relieve the suffering of the poor. •Opposed government relief programs. •When the number of needy and homeless people became overwhelming, he had to take action. •Set up the public works program- hired workers to construct schools, build dams, and pave big highways. Not enough The Hoover Administration Well- meaning but Ineffective Relief for Business •Predicting better times in the near future. Such reassurances, unfortunately, did not put food on the table. •He thought it would be best if the businesses tried to help each other out of the Depression. •But as time passed the situation did not improve. So Hoover formed the Reconstruction Finance Corporation. This agency loaned money to railroads, banks and insurance companies to keep them in business. By doing this, Hoover hoped to keep workers on their jobs, but it was too little too late. The Hoover Administration Well- meaning but Ineffective Relief for Business •Hoover tried to restore people's confidence in the economy by predicting better times in the near future. Such reassurances, unfortunately, did not put food on the table. The economic depression continued to spread, businesses continued to fail, and more people became jobless. •Because of his conservative view of government intervention, Hoover opposed direct aid for the business decline following the stock market crash. He thought it would be best if the businesses tried to help each other out of the Depression. But as time passed the situation did not improve. So Hoover formed the Reconstruction Finance Corporation. This agency loaned money to railroads, banks and insurance companies to keep them in business. By doing this, Hoover hoped to keep workers on their jobs, but it was too little too late. Hoover’s Reaction Identify – What groups did Hoover believe should give assistance to the poor? Explain – How did government programs give assistance to the nation under Hoover? Elaborate – What would you have done differently about the Bonus Army encampments? Main Idea 4: Roosevelt defeated Hoover in the election of 1932. Herbert Hoover Franklin D. Roosevelt • Republican nominee • Democratic nominee • Few believed he could win. • Had already taken active • Strategy: warning that steps to provide aid as Democrat aid programs governor of New York would weaken Americans’ • Had confident and optimistic sprit of self-reliance. personality that appealed to voters • Won the 1932 election in a landslide The Election of 1932 Americans blamed President Hoover for the country’s economic woes. Franklin Delano Roosevelt won the Democratic Party’s nomination. He was related to Theodore Roosevelt. He survived polio. He was governor of New York. Roosevelt promised relief for the poor and more public works programs to provide jobs. He attacked Hoover and the Republicans for their response to the Great Depression. Roosevelt won a landslide victory—winning more than 57 percent of the popular vote. The Election of 1932 What were the key events of the presidential election of 1932? Recall- What government jobs did Roosevelt hold before running for president? Explain- How did Roosevelt plan to turn the economy around? Evaluate- Do you think as a presidential candidate, Roosevelt should have clearly described his plans to end the Depression? Introduction of FDR's Democratic Family (00:42) Election of 1932 Recall – Which two candidates ran in the 1932 presidential election? Rate – Which party’s idea about aid to needy Americans would work best?
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