Great Depression and New Deal. Stock Market Crash In October 1929, panic selling caused the United...

Great Depression and New Deal

Stock Market Crash

• In October 1929, panic selling caused the United States stock market to crash.

• The crash led to a worldwide economic crisis called the Great Depression.

• People did not see the crash coming – kept investing their money with confidence.

Stock Market Crash

• By September 3, 1929 the Dow Jones Industrial Average – or average stock prices of major industries – reached an all time high.

• DJIA was 381.

• Prices for many stocks began soaring far above their actual value.

Stock Market Crash

• After the peak in September, prices began falling slowly.

• Investors became nervous but overall buying on margin continued.

• On Wednesday, October 23rd DJIA had dropped 21 points.

Stock Market Crash

• The next morning, investors began to sell to avoid losing money and stock prices fell tremendously – known as Black Thursday.

• Example: Investors who bought stocks of General Electric at $400 sold it at $280.

• President Hoover promised the American people that economy was still strong.

Stock Market Crash

• To stop the panic, a group of bankers pooled their money together to buy stock.

• This stabilized prices for only a few days.

• On Monday, prices were still falling. Investors raced to get their money out of the declining stock market.

Stock Market Crash

• The next day, Tuesday, October 29th a record 16.4 million shares were sold.

• The normal day consisted of 4 to 8 million shares sold.

• This day is known as Black Tuesday, or when the stock market finally crashed.

Stock Market Crash

• The crash continued through November as the DJIA kept falling.

• Overall losses totaled $30 billion.

• The crash was part of the American business cycle, or when the economy grows and then contracts.

Stock Market Crash

• Initially, the crash only affected those who invested heavily.

• Within a short time, the ripple effect of the crash was felt throughout the entire economy.

• Millions of people who had never even owned stocks became effected.

Stock Market Crash

• Banks lost money from businesses unable to repay loans.

• Consumers could not pay banks from their installment plans.

• Bank runs put some banks out of business – customers rushed in to withdraw all of their money.

Stock Market Crash

• Businesses had to cut production because they could not afford loans from banks.

• The cut back in production caused businesses to cut expenses, or in other words, fire employees.

• As unemployment grew, less consumers were buying, causing business to cut back even more.

Stock Market Crash

• These economic factors combined to create what is known as the Great Depression.

• A severe economic downturn that lasts for an extended amount of time.

• A severe depression like the Great Depression causes job loss and home loss.

Stock Market Crash• Henry Ford shut down his Detroit automobile

factories putting 75,000 people out of work.

• Farms who had been suffering any way during the business boom of the 1920s were suffering even more.

• By 1932, 12 million people were unemployed – about 25% of the population – others worked part-time or for lower wages.

YOUR TURN TO WRITE

• What was the immediate cause of the stock market crash in 1929?

• Explain how the crash ushered in the Great Depression.

Depression Sets In

• The Great Depression effected the whole world, not just United States.

• American business invested in Germany – Germany owed France and Britain for war – France and Britain owed US for war.

• American business stopped investing in Germany – European economy also suffers.

Depression Sets In

• Federal tax policies favored the rich which led to an uneven distribution of income.

• Industry produced more goods than consumers wanted or needed.

• By the early 1930s, wage cuts and growing unemployment had brought widespread suffering across the United States.

Depression Sets In

• People could not understand why the banks did not have their money that they deposited.

• Homeless people sometimes built shanty towns with shacks of tar paper, cardboard or scrap material.

• These shelters were known as “Hoovervilles” to mock the President whom they blamed.

Depression Sets In

• Farmers who were suffering from low crop prices began destroying crops to lower supply.

• The nation was shocked as starving families saw pictures of farmers dumping milk.

• Midwest suffered through the Dust Bowl – partly farmers fault.

Depression Sets In

• When farming prices were low, farmers extended their farm land to grow more crops.

• They cut down prairie grass that served as a natural protection against wind.

• Drought mixed with strong winds kicked up huge dust storms that covered everything.

Depression Sets In

• Drought and dust storms dominated the area – many farmers migrated to California

• Depression was taking a toll on people’s health.

• Poor diets, inadequate medical care – children had it the worst.

Depression Sets In

• Living conditions declined as families and neighbors moved in together.

• Working women were accused of taking jobs from embarrassed men.

• Some employers like Henry Ford would not hire married women if husbands had a job.

Depression Sets In

• Minorities were also affected – 56% of African-Americans were unemployed by 1932.

• Discrimination increased for African-Americans.

• Some employers would not hire blacks, and they were ineligible for some government relief programs.

YOUR TURN TO WRITE

• Explain how the Great Depression affected economies in Europe.

• Explain the conditions that led to the Dust Bowl.

• Draw a Hooverville.

Americans Survive Depression

• Americans survived the Great Depression with determination and even humor.

• They helped one another, looked for solutions, and waited for the hard times to pass.

• Farmers also worked together to minimize the impact of the Depression.

Americans Survive Depression

• When farmers were unable to pay the mortgage of their farms, banks foreclosed on their properties.

• Foreclosed properties were sold at auctions.

• Local farmers secretly agreed to keep prices at auctions low so that original owners could buy them back – penny auctions.

Americans Survive Depression

• In the early 1930s nearly 250,000 teenagers were living on the road and riding the railroads – seeking opportunity.

• However, there was little violence, no rioting, and no calls for revolution.

• Jokes and cartoons helped people through their troubles.

Americans Survive Depression

• The term “Hooverville” started a trend.

• People who slept outside on benches used old newspaper – or “Hoover Blankets” to stay warm.

• Empty pockets turned inside out were called “Hoover Flags”.

Americans Survive Depression

• People searched for signs of positive change to stay optimistic.

• One change was the Twenty-first Amendment which repealed Prohibition.

• Government did it to curb gangsters – but public viewed it as an end to a social experiment.

Americans Survive Depression

• For many a dramatic symbol of hope was the Empire State Building.

• It was built in a race for the world’s tallest skyscraper.

• 4,000 workers built it, and it dominated the New York skyline – viewed as an accomplishment.

YOUR TURN TO WRITE

• How were penny auctions an example of Americans sticking together and helping each other survive the Depression?

• Imagine you are an out of work American during the Depression. Write a letter to a friend in England discussing your situation, and your feelings and emotions.

Hoover and Bonus Army

• President Hoover faced another crisis of his own – the 1932 election.

• Hoover believed that voluntary action by business would cure Depression – not government action.

• Hoover did not want to extend government and enforce government bailouts.

Hoover and Bonus Army

• Quote from Hoover during 1932 election:– “…we should find solutions for many of our

complex problems, and not by the extension of government into our economic and social life.”

With this quote Hoover is arguing against government action to use tax payer money to get the country out of depression.

Hoover and Bonus Army

• Many people wanted Hoover to do more – but often people blamed themselves for their plight.

• Hoover did become more flexible as hardships continued.

• To create jobs, government spent more on public buildings, roads, parks and dams - Hoover Dam began in 1930.

Hoover and Bonus Army

• Hawley-Smoot Tariff passed in 1930 – the highest import tax in history

• Idea was to protect American business and support American industry

• Tariff backfired – European countries raised their own tariffs, slowing international trade

Hoover and Bonus Army

• Hoover sets up Reconstruction Finance Corporation (RFC) in 1932.

• Gave government credit to banks so that they can extend loans.

• Public viewed it as only helping bankers while ordinary people starved.

Hoover and Bonus Army

• Hoover hits a low point in 1932 with WWI veterans march on Washington.

• Veterans promised a $1,000 pension bonus in 1945.

• Veterans went to Washington demanding the payment immediately.

Hoover and Bonus Army

• House voted to pay veterans, Senate voted against it.

• Some veterans left, about 2,000 stayed in Washington demanding to speak to Hoover.

• Called themselves the “Bonus Army” and set up camp in the city.

Hoover and Bonus Army

• Some demonstrations turned violent – Hoover feared a riot.

• Hoover called in the Army and General Douglas MacArthur to clear out veterans.

• Violence erupted between the Army and WWI veterans – Hoover took responsibility.

YOUR TURN TO WRITE

• Imagine you are a Bonus Army veteran and you joined the march on Washington in 1932. Write a diary entry that talks about your experience. Be sure to use the following terms: President Hoover, General MacArthur, pension, and riot.

FDR

• Enter Franklin Roosevelt – born 1882 – nicknamed “FDR”.

• Harvard graduate – served as assistant Secretary of the Navy under Woodrow Wilson.

• Was nominated as the Vice President on the losing 1920 Democratic ticket.

FDR

• Suffered from polio after 1920 election – never walked without help again.

• Married his distant cousin, Eleanor, in 1905 – she was also active in politics.

• Elected governor of New York in 1928 – nominated to Democratic ticket in 1932.

FDR

• FDR unlike Hoover was ready to experiment with government roles.

• However – FDR wanted the expanded role of government to be temporary and eliminated as soon as possible.

• He promised America a “New Deal” and people felt optimism with him.

FDR

• 1932 election became a contest between two philosophies of government.

• Federal government should not fix people’s problems (Hoover) vs. Federal government should help fix people’s problems (Roosevelt).

• FDR wins election in 1932.

FDR

• During FDR’s Inaugural Address on March 4, 1933 – “The only thing we have to fear, is fear itself.”

• First Sunday in office he gave the first of his many and popular “fireside chats”.

• FDR was ready to act on his promise of “bold and persistent experimentation”.

FDR

• March – June 1933 known as the hundred days.

• Democrats controlled the Presidency and Congress and policy was easy to pass.

• Numerous programs were passed – idea was to stimulate the economy into recovery

FDR

• First step was to restore confidence in the banks.

• March 5, 1933 – FDR closed all banks for four days – and passed the Emergency Banking Act.

• Government inspected banks for financial stability - 2/3 reopened.

FDR

• June 1933 – Federal Deposit Insurance Corporation (FDIC) established to improve confidence in banks.

• Government insured bank deposits up to $5,000.

• Americans once again began depositing their money into banks.

YOUR TURN TO WRITE

• When it came to government involvement to cure America from the depression, how were Hoover’s and Roosevelt’s philosophies different?

• Think about one of the major causes of the Great Depression. Why do you think Roosevelt tried to fix the banks first?

Forging A New Deal

• FDR’s next step was to help local government relief agencies.

• Federal Emergency Relief Administration (FERA) established to send funds to the local agencies.

• FERA put money into public works programs – government funded projects built facilities.

Forging A New Deal

• This established the Civil Works Administration (CWA) in November 1933.

• CWA – created jobs building or improving roads, parks, airports, etc.

• CWA created 4 million jobs for the unemployed.

Forging A New Deal

• Another public works program was the Civilian Conservation Corps (CCC).

• 2.5 million jobs restoring forests, beaches, and parks – planted trees to help dust bowl area.

• CCC workers received small wages, but free camp, food and medical care.

Forging A New Deal

• The National Industrial Recovery Act (June 1933) designed to help industry.

• Established the National Recovery Administration (NRA) – set up industry wide codes of fair practices.

• Regulated wages, working conditions, production and prices.

Forging A New Deal

• NIRA’s best contribution was the Public Works Administration (PWA) – created more jobs working on bridges, roads and dams.

• The Federal Securities Act was passed – establishing the Securities Exchange Commission (SEC) to regulate the stock market.

Forging A New Deal

• The public works programs also targeted farming aid.

• The Agricultural Adjustment Administration (AAA) was created to give government assistance to help farm prices.

• AAA used tax money to pay farmers not to grow certain crops. Idea was less supply = higher prices.

Forging A New Deal

• The Tennessee Valley Authority (TVA) created in May 1933.

• Helped farmers and created jobs in the Tennessee Valley.

• Provided cheap electricity and flood control to numerous southern states.

Forging A New Deal

• Programs were bringing some help to the economy, but not enough.

• Hoover criticized FDR for making federal government too powerful – called it a tyranny.

• Supreme Court rules NIRA and AAA unconstitutional – President “making law”.

YOUR TURN TO WRITE

• Evaluate FDR on his New Deal policies. The goal was to stimulate the economy by creating jobs through public works programs. Was he wasting tax payers money, or was he providing useful programs? Give FDR a letter grade: A being the best and F being the worst – then explain your answer.

New Deal Legacy

• Even though first New Deal stumbled, FDR still had public support.

• Programs became more aggressive.

• More social welfare benefits, stricter business control, stronger union support, higher taxes on rich.

New Deal Legacy

• In 1935, Congress also passed the Social Security Act (SSA) to provide payments to people who could not support themselves.

• Targeted seniors at age 65, workers who lost their jobs, and physically disabled.

• The SSA was debated heavily.

New Deal Legacy

• 1936 election - FDR vs. Alfred M. Landon.

• Landslide win for FDR: 523-8 electoral college votes.

• Most Americans still supported the efforts of the New Deal.

New Deal Legacy

• Many critics were outspoken against the policies of FDR’s New Deal.

• No program to help domestic service – the largest female occupation.

• African-Americans still discriminated against when it came to jobs.

New Deal Legacy

• Wealthy citizens complained the New Deal did too much – and programs were taxing them more.

• Claimed the SSA penalized hard working people by taking money away from them.

• Some critics complained FDR was not doing enough to help the economy.

New Deal Legacy

• FDR was frustrated at the Supreme Court for ruling that the NIRA and the AAA were unconstitutional.

• FDR proposed a court reform bill to add six more judges to the Supreme Court.

• Critics blasted FDR for trying to change to Constitution and the bill was withdrawn.

New Deal Legacy

• For the most part people accepted more government intervention.

• Changed the way people view labor unions.

• John Steinbeck’s The Grapes of Wrath – book about Dust Bowl victims.

New Deal Legacy

• The country listened to the first soap-operas – appealed to women at home.

• Movies shown in “Technicolor” – Wizard of Oz in 1939.

• Walt Disney introduced Mickey Mouse and Snow White and the Seven Dwarfs.

New Deal Legacy

• Bridges, tunnels, dams, buildings, monuments, and hospitals still stand today.

• The foundation of the Social Security Administration.

• Question remains – did New Deal end Great Depression?

New Deal Legacy

• In the end, the U.S. government’s role was expanding into society and the economy.

• FDR was not afraid to use his power as president to try to fix Depression.

• He took extreme measures to restore people’s faith in the government and economy.

YOUR TURN TO WRITE

• What was the purpose of the Social Security Act?

• Why were some African-Americans and some women critical of FDR’s New Deal?

• How did FDR’s New Deal expand the role of government in America?