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					The Great Depression



             By Gisele Hanhon
               Jose Jimenez
               Issa Nordein
                        Table of Contents
Introduction                       Gisele

   Causes of the Crisis
   Impact of the Economy
   Crisis
   Policy’s

The First One Hundred Days         Jose

   Important Facts
   FDR Facts
   Alphabet Soup


The Second New Deal                Issa
   1937 recession
   Recovery
   WW2
                    Introduction

 Began with the stock market crash on October 29, 1929


 Worldwide phenomenon


 Lasted throughout the 1930s in the U.S. and did not
  completely end until the U.S. entered WWII in 1941

 Transmitted to other countries through the gold standard
                 Causes of the Crisis

 Multiple causes: decline in consumer demand, financial panics, as
  well as misguided government policies that led to a decrease in
  output
 Stock market bubble: “get-rich-quick” mentality and purchasing
  on margin. The prices of stocks were far higher than their value
 Throughout the 20s, investors were indulging in speculation
                  Causes (cont’d)
 Farm debt: farmers could not pay back the loans they took
  out during WWI due to an decrease in the prices of
  agricultural goods (econ. historians view this as a reason that
  contributed to the banking panics)

 Government policies: In an attempt to regulate/ limit stock
  market speculation, a tight monetary policy was
  implemented in the Summer of 1929.

 The Federal Reserve raised interest rates to slow the rise in
  stock prices in 1928 and 1929
            Impact on the Economy

 Consequently, consumer demand fell as higher interest rates
  depressed interest-sensitive spending/investment, such as
  auto purchases as well as construction causing an oversupply

 Excess supply led to a drop in prices, which led to a drop in
  production

 It also transmitted to other countries as high interest rates
  decreased lending to foreign nations, which caused their
  output to drop
                 During the Crisis

 The bubble burst on October 24, 1929 (Black Thursday) and
  panic selling of stocks started.

 A group of banks attempted to restore people’s confidence
  and reduce panic by pooling their resources and bought $40
  mil. Of blue chip shares.

 However, the stock market crashed on Black Tuesday, (Oct.
  29) when stock prices fell 33%
                     Banking Panics
 Due to pessimism about the future, people wanted currency so
    they rushed to the banks and demanded their deposits in Fall of
    1930, Spring and Fall of1931, and Fall of 1932 &33
   Many banks found themselves short of funds because they could
    not liquidate loans
   Response: FDR declared a national “bank holiday” on March 9,
    1933 that closed down banks until deemed solvent
   Around 9,000 banks failed
   Such panics reduced the money supply
                 Scope of the Crisis
 1929-1933 was the worst period of the depression due to
    significant drop in real GDP and prices as well an increase in
    unemployment .
   Industrial production fell 47%.
   Real GDP fell 30%.
   Price level decreased 25%.
   Unemployment reached 25% in1933 (it was <4% in 1929).
   BUT…slow recovery began in Spring 1933 when real GDP
    increased by 9% per year until 1937 and picked up again mid-
    1938.
   Full recovery occurred due to mobilization for WWII in 1941.
           Policy Makers’ Response

 Immediately after the crash, President Hoover asked
  businesses to cut into profits instead of wages/jobs and urged
  state and local governments to start public works projects.

 However, the depression hit by 1930 and there was a drop in
  wages, which led to a drop in consumption.
  Policy Makers’ Response (cont’d)
 President Hoover reduce d all 1929 income tax rate by 1%
  due to budget surplus, but that turned into a deficit by 1930.

 By 1932, a tax increase to balance the budget was approved,
  which crippled recovery .

 Consequently, disposable income dropped causing
  consumption to drop and overall economic activity.
                     More Policies…
 The Fed reduced money supply in September 1931 and raised
  interest rate (to preserve the gold standard and prevent loss of
  confidence).

 Revenue Act of 1932 increased American tax.


 Fed’s Contractionary policy: some argued that the Fed chose this
  over expansionary policy due to fear that an increase in money
  supply would reignite speculation.

 Political instability in Europe from 1933-1937 triggered gold
  inflows to the U.S. which expanded the money supply 42% and
  eventually encouraged spending/borrowing.
                              Important Facts
 Other causes of the Great Depression:
   1.   Consumer debt increase.
   2.   WW1
   3.   Stock prices
   4.   1% of the population controlled 40% of the wealth


 Depositors withdrew several hundred millions of dollars.

 Various protest occurred during 1932.
   1.   Bonus Army
   2.   Corn Belt Rebellion
            Background on FDR

• Roosevelt studied in Harvard.

• He was diagnosed with polio.

• Ran for Vice President a couple years prior to the recession.

• Fireside chats
                 Alphabet Soup 1

 Civilian Conservation Corps (CCC) was created on March
31th 1933. The CCC employed a quarter million young men
in their early twenties and late teens. They planted over 200
million trees, fought forest fires, cleaned beaches, built
reservoirs and dug drainage ditches. Furthermore, each
worker was paid $30 a month.

The $30 dollars paid to the CCC workers in 1933 would
amount to $1,200 per month in 2011. The book I read
mentioned that $5,000 equals roughly 200,000. I divided
200,000 by 5,000 = 40 *30 = $1,200.
                  Alphabet Soup 2

 Agricultural Adjustment Administration (AAA) The AAA
was created on May 12th 1933. This program was created to
benefit farmers. The government paid farmers money to
reduce their production of crops such as; corn, cotton, wheat
and tobacco. Roosevelt intention was to allow other crops to
increase in prices.
                     Alphabet Soup 3

• The Tennessee River Valley (TVA). The TVA was created on May
18th 1933. The bill created the Tennessee Valley authority which
covered much of the southeast. A dam was built in Muscle Shoals,
Alabama to provide electricity to near by communities. Eventually,
other dams were built which the government owned. The power
was sold at a low price, which made it possible for people to afford
                Alphabet Soup 4

• Public Works Administration (PWA). The PWA was
created on June 16th 1933. The program financed the
creation of public buildings, infrastructures , bridges and
facilities. The Budget of the program is estimated to be
around 3.3 billion dollars.
The Civilian Conservation Corps
                                 NRA

NRA is the National Recovery
Administration which is it was created
by President FDR to help the economy.

NRA Goals…

• Eliminate unfair trade practices
• Reduce unemployment
• Establish minimum wages and
maximum hours
• Guarantee the right of labor
Monetary policy
 Banks had begun to hold large excess reserves.




 The Federal Reserve knew that if banks used a large amount of those excess
  reserves to increase lending, the money supply would quickly expand and price
  inflation would go up as well.
Recession of 1937–1938
Reasons:
 Cuts in federal spending
 Increases in taxes
Effects:
 Unemployment went up from 14.3% in 1937 to 19.0% in 1938
 Manufacturing output fell by 37% from the 1937
 Producers reduced their expenditures on durable goods, and inventories
  declined
Recovery: ??????
   World War 2, and the recovery
 As most of the economist argue, the world war 2 got United
  States out of the Great Depression.

 They believed that government spending on the war led to
  recovery from the Great Depression, but other argue that war
  world 2 did not play a big role, but it help in reducing the
  unemployment rate.

 The number of unemployed workers declined by 7,050,000
  between 1940 and 1943, but the number in military service rose
  by 8,590,000.
Were the US citizen s better off or
worse off during WW2 ????

Negative impact
 Some argue that the decrease in unemployment is because the war
  and the draft, not because the economic recovery.
 Business investment fell during the war. Government spending on
  the war effort exceeded the expansion in real GNP.
Positive impact
• Because the war need a lot of supplies, most of the factories put
  to work.
• A lot of unemployed people went to war fighting for their
  country, which it lead to lower unemployed rate.
¿ Any Questions ?

				
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posted:9/30/2011
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