THE GREAT DEPRESSION

MAJOR CAUSESStock Market Crash (1929)

Bank Failures

Reduction in Purchases

THE STOCK MARKET CRASHThe Days Before• High trading volumes (buying/selling)• Steadily rising prices• Peaked on Sept. 3, 1929, then fell into decline

The Crash• Decline Accelerated into “Black Thursday”(Oct. 24, 1929)• Panic on the trading floor • Record number of trades due to rapidly falling prices

Failed Attempt at Recovery• Wall Street’s leading bankers met to find a solution• Elected Richard Whitney (then Vice President of NYSE) to

place a massive bid on many “blue chip” stocks in the hopes of boosting recovery

• Only succeeded in stalling the decline for the remainder of the day

BANK FAILURES

PanicPeople saw what was happening in the stock market, and rushed to withdraw their savings in what’s known

as a “bank-run”

Banks had no money to give back due to the inability to collect on the loans used for buying stock

Bad Loans

Giving out loans for “buying on margin” When, the stock market crashed, the banks couldn’t collect

Poor Infrastructure

Very little government involvement in the American banking system at the time/non-exsistent regulations

On average, 70 banks would fail, nationally, during the 1920’s

REDUCTION IN PURCHASING

With the economic decline, people were afraid to spend any

money, and instead held onto whatever money

they had

This led to less production, which led to

massive job cuts, leaving much of the country unemployed

With no income, spending came to an almost complete halt,

and the economy slumped even deeper

into the depression

THE TURNING POINT TO RECOVERY

Pre

sidenti

al Ele

ctio

n

19

32Because of

President Hoover’s lack of action resulting in progress during the early stages of the Depression, it was an easy victory for Franklin D. Roosevelt, who promised action against the failed economy.

Pre

sident

Herb

ert

H

ooverThe stock market

crash occurred after only 8 months of President Hoover’s term. Hoover’s policies toward the depression were based on volunteerism. He also believed that the private sector would recover on its own, without the governments help.

New

Pre

sident,

New

Po

licie

sAs soon as FDR took office, he began building the foundation for the rebuilding of the American Economy. He called his plan for the future “The New Deal”

FDR’S NEW DEAL“FIRST ONE HUNDRED DAYS”

Closed all banks nationwide for a three day “cool down”

FDIC was created (insures money placed into the banking system, up to $5000, at the time)

The Gold Reserve Act was passed, taking the U.S. away from a gold-backed currency system

The Economy Act was passed, cutting government salaries and saving $500,000,000

The Agricultural adjustment Act (AAA), Resettlement Administration (RA), Farm Security Administration (FSA), Rural

Electrification Administration (REA), and Tennessee Valley Authority (TVA) were all used to address the rural problems in

America, as well as create jobs

Repealed Prohibition, creating large revenue for cities

FDR’S NEW DEAL“THE SECOND NEW DEAL 1934-35”

The Wagner Act was passed in order to

promote labor unions and their growth

The Works Progress Administration (WPA) was organized and

gave millions of people jobs doing various projects (construction of

buildings and roads, distribution of clothes/food)

The Social Security Act was put in place

(still functioning today)

BRIEF RECESSIONThe economy dipped low

again in late 1937, and lasted through most of 1938

FDR solved this issue by again increasing government

spending, and therefore giving the people more “buying

power”

THE END OF THE DEPRESSION

The effects of the depression continued to decline up to the U.S. entering World

War II

Do to the massive mobilization efforts,

the GNP doubled (due largely to

government spending), and

signaled the end of the Great Depression

REFERENCES

Cole, Harold L., and Ohandi, Lee E., New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis. UCLA and Federal Reserve Bank of Minneapolis, February 2003.

“Franklin D. Roosevelt: Inaugural Speech of Franklin Delano Roosevelt.” Retrieved from http://literaturepage.com/read/fdr_inaugural_speech-1.html, February 2007.

Hamilton, David. “The Causes of the Banking Panic of 1930: Another View.” The Journal of Southern History, 1985.

Kangas, Steve. “What Role Did the Smoot-Hawley Tariff Play?” Retrieved from www.huppi.com/kangaroo/SmootHawley.htm .

McJimsey, George. “Agricultural Adjustment Act.” Retrieved from www.spartacus.schoolnet.co.uk/USARagriculture.htm, February 2007.

Samuelson, Robert J. “Great Depression.” Library of Economics and Liberty: The Concise Encyclopedia of Economics. Retrieved from www.econlib.org/LIBRARY/Enc/GreatDepression.html, February 2007.

Wheeler, Mark. The Economics of the Great Depression. W.E. Upjohn Institute for Employment Research, Western

Michigan University, 1998.

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