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Unit III – A Modern Nation


									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
   Corporation profits were on the
   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)
   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
   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
   Republicans Harding, Coolidge
    and Hoover Pro-business
    policies gave business maximum
   ―The chief business of America
    is business‖- Coolidge
   Hoover was a business like
    leader- great for a prosperous
   People may have thought too
    highly of Hoover. (pedestal,
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
   • 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
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
   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.
                                                  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


 Stock Market Crash
 Effects of the Crash

 Effects on Individuals
   Investors ruined, huge fortunes
   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


 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


 Stock Market Crash

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


 Stock Market Crash


 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
   Explain – How did people lose their life
   Identify Cause and Effect – How did the
    stock market crash affect banks and
Causes of the Great Depression
   Business cycle – the rhythm in which an economy expands and contracts its
        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
        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

      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
        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

               "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
•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
 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
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
                               • Won the 1932 election in a
The Election of 1932
   Americans blamed President Hoover for the country’s
    economic woes.
   Franklin Delano Roosevelt won the Democratic Party’s
       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
   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
 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
 Rate – Which party’s idea about
  aid to needy Americans would
  work best?

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