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Quiz 1. What does “buying on margin” mean? 2. What was the “Bonus Army”? 3. Name one of the “Hundred Days” legislation acts that passed. 4. What was one of the three goals FDR had in the “Second Hundred Days”? 5. Name one of the Second New Deal legislation acts that passed. Bonus question: What happened 67 years ago yesterday? The Great Depression and the New Deal, 1929-1940 Chapter 24 Hard Times • The economic depression that occurred in the 1930s was more than financial • The psychological impact was called the “invisible scar” • Those who were alive during the depression still retain some of their frugal ways • Many people blamed the stock market crash of 1929 as the cause for the depression—this is inaccurate! Hard Times • The stock market became fashionable in the 1920s • It was patriotic to buy stocks, even if you didn’t have the money for it • John J. Raskob (GM chairman) wrote an article for Ladies Home Journal titled “Everyone Ought to Be Rich” • The article said that by investing $15/mo, you would have $80K in 20 years • People began buying stock on speculation • Take out loans to buy stocks assuming that their value would increase enough to pay back the loan plus make a profit Bull Market Hard Times • Buying on the margins (loans) allowed more people to “afford” stocks • Corporations with spending money would lend money to stockbrokers rather than re-invest in their own companies for new technologies, etc. • Why is this a problem? Hard Times • Many assume that the stock market crash occurred over a few days • Not true—the “crash” had been at least a month in the making • Dow reached its peak on Sept. 3 (381.17) • The market started sliding in September, slowly • On Oct. 23, 1929 the Dow Jones fell 21 points (large sum for back then) • On Oct. 28th the Dow lost 28 points • On Oct. 29 (Black Tuesday) the Dow fell another 30+ points • It doesn’t hit bottom until July 1932, falling 89% from the Sept. 3, 1929 record Compare to 2008 • Stocks height of 2008 was at 13,043.96 (Jan. 2, 2008) • Beginning of the drastic decline—Oct. 1 • Low point=7,552.29 (Nov. 20) • Ending point for Dec. 5, 2008=8,635.42 • This has been the worst year for the stock market since the 1930s Hard Times • As the stock market became shaky, so did the credit market • Because the loans were backed by the stock itself, as the value decreased, the borrower had to pay the difference • Half the value of stocks was lost in a matter of 10 weeks • In late Oct. Hoover stated that the country was on a “sound and prosperous basis” • "In the long run, we can be confident that our economy will continue to grow, but in the short run, it is clear that growth has slowed.“ —President Bush, March 17, 2008 Hard Times • Andrew Mellon, Sec. of the Treasury under Hoover, said that the stock decline would lead to a purge of the rottenness in the system • No one was predicting a depression at this point • Despite the bleak market numbers, this was not the cause for the depression Hard Times • Overproduction was the key cause of the depression • As more agricultural and industrial companies had been urged to make more, consumers were buying less • Wages rose 8% between 23 and 29 while worker output rose 32% • An unequal distribution of wealth also contributed to the oncoming depression • 80% of the nations families didn’t have any savings Hard Times • The crash caused investors, businesses, and the wealthy to lose confidence • Manufactures decreased production and laid off workers • With higher unemployment, fewer people could buy goods and thus companies lost more money, which meant more layoffs • Banks began to fail as people began withdrawing the money (banks were not insured at the time) • 5000 bank failures occurred between 1929-1932 • What happens to the money when a bank fails? Hard Times • There is no such thing as “unemployment benefits” during this time • By 1933 16M people were without jobs (33% unemployment rate) • Today’s unemployment rate (after 500K people being laid off in Nov. 2008) is around 6.7% • The psychological toll of unemployment was harshened by the philosophy that each was responsible for his own success Hard Times • Men, especially 35-55, found it more difficult to cope with • They felt despised, and lazy • Many contemplated, or did commit suicide • Others became drunks • Women could get jobs easier because they were paid less • This disturbed the traditional “male- breadwinner” belief • Those who did work had to put up with being harassed because of fear of losing their job Hard Times • Local efforts to help were not sustainable • Money, resources, and staff could not deal with the 50% unemployment rate in some areas • Warmer areas like FL and CA could not deal with the jobless migrants seeking employment • By 1931 Los Angeles was seeing new arrivals at a rate of 1200 per day Hard Times • Hoover seemed to ignore the severity of the issue by claiming that the local communities could handle it • The President’s Organization for Unemployment Relief (POUR) was led by Walter S. Gifford who urged fundraising at the local level and said it would be a disservice to the unemployed to give Federal aid • FDR’s administration created federal aid in the form of welfare, etc? Has it been a disservice? Hard Times • Hoover believed that business confidence was the key • He created the Reconstruction Finance Corporation (RFC) • Government credit would be available for bank, RRs, insurance, and other businesses • This belief was based on idea that credit was not being offered because the companies could not afford, not because the consumers couldn’t • Hoover didn’t want this money going to states and individuals, but Congress changed that Hard Times • In 1932 Congress passed the Emergency Relief Act allowing $300M to go to states who needed additional funds • Only $30M had been given out by Dec. 1933 • Only a small portion went towards public works Quiz 1. What were some of the negative outcomes of the Dust Bowl? 2. Name two of the states effected by the Dust Bowl? 3. What did the Bureau of Indian Affairs do under FDR? 4. Name one of the movies that came out in the 1930s 5. Explain FDR’s court packing bill Bonus: Name two of the acts that Britain passed that led to the American Revolution Hard Times • By 1932, protests were occurring across the country • Farmers created the Farmers’ Holiday Association—refused to sell goods until prices rose • Thousands marched on Ford River Rouge Factory in Detroit—police killed 4 • The “Bonus Army” marched on D.C. to demand that the WWI bonus of $1k be paid in cash now instead of in the form of a matured bond in 1945 • The Senate refused to pass a bill • The remaining soldiers were removed by MacArthur’s men providing a sad image for the heroes of 1918 Hard Times • It is easy to see why Hoover didn’t get reelected • FDR’s acceptance speech for the Democratic candidacy was “I pledge you, I pledge myself to a new deal for the American people.” • During the campaign, FDR called for addressing underconsumption and redistributing wealth FDR and the First New Deal • FDR was born wealthy and joined politics early • It wasn’t until he was stricken with polio that he became such a determined person • As Gov. of NY in 1928 he instituted unemployment insurance, stricter child labor laws, tax relief for farmers and pension plans for elderly • As depression his NY, he provided Public work programs and a Temporary Emergency Relief Administration • These same concepts would follow him to the presidency FDR and the First New Deal • In his inaugural address he said “the only thing we have to fear is fear itself” • The next day he declared a “bank holiday” • The purpose was to fix the banking industry after bad policies had caused so many closures • On March 12th he started his “fireside chats” which were radio broadcasts to the citizens explain what he was doing • They were very successful, and thus became part of his regular routine FDR and the First New Deal • Congress immediately passed the Emergency Banking Act • Gave the president broad powers • Banks were allowed to reopen after they received approval from the Treasury Department • By the end of March, banks were reopened and accepting new deposits—the banking crisis had ended • The Federal Deposit Insurance Corporation was created to protect deposits that were put into Federally backed banks FDR and the First New Deal • FDR didn’t come into office with a unified plan • The first “Hundred Days” of his administration he passed through extraordinary amounts of legislation to fix various issues • 7 key pieces of legislation were pushed through during this time • Some were allowed to remain, others were overturned by the Supreme Court Hundred Days Legislation Emergency Banking •Enlarged federal authority over private banks Relief Act •Government loans to private banks Civilian Conservation •Unemployment Relief Corps •Conservation of Natural Resources Federal Emergency •Direct federal money for relief, funneled through state and Relief Administration local governments Agricultural Adjustment •Federal farm aid based on parity pricing and subsidy Administration Tennessee Valley •Economic development and cheap electricity for TN Valley Authority National Industrial •Self-Regulating industrial codes to revive economic Recovery Act activity Public Works •Federal public works projects to increase employment and Administration consumer spending Left Turn and the Second New Deal • FDR had many critics from both the right and the left • Republicans called him a socialist • Democrats said his was not tough enough on various issues • Huey Long (Gov., then Sen. From LA) championed against FDR • Created the Share Our Wealth Society • He was going to run against him in 1936, but was assassinated Left Turn and the Second New Deal • The main goals that FDR had in his “Second Hundred Days” included: • Strengthening the national commitment to creating jobs • Providing security against old age, unemployment, and illness • Improving housing and cleaning slums • The legislation that passed during this time frame became known and the Second New Deal Second New Deal Legislation The New Deal and the West • The Great Plains in the 1930s saw the worst ecological disaster ever in the region • Over the years, farmers had stripped the land of its natural vegetation, causing massive wind erosion • This became known as the Dust Bowl as tens of millions of acres of topsoil were carried off • Effects of the Dust Bowl included: • Difficulty breathing • Limited visibility • Death to plants and livestock The New Deal and the West • To relieve issues stemming from the Dust Bowl, the federal government put moratoriums on loan payments, offered crop and seed loans, offered temporary jobs under the WPA • They also tried to keep farmers from overproducing, and tried to keep cattle off of drought-stricken lands The New Deal and the West • Another effort was the creation of the Soil Conservation Service, designed to control wind and water erosion • All of the federal government’s effort was for naught: • Rains returned • World War II broke out, creating an increase in demand • Farmers returned to their old methods and expanded wheat production The New Deal and the West • Discuss Grapes of Wrath The New Deal and the West • Another major outcome of the New Deal was the development of water projects such as damming and irrigation • The most famous of these projects is the Hoover Dam, designed to harness to Colorado River • The dam supplies energy to California, Nevada, and Arizona The New Deal and the West The New Deal and the West The New Deal and the West
"The Great Depression and the New Deal"