Stock Market Crash and the Great Depression

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    Stock Market Crash and the

    Great Depression

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    Causes of the Great Depresssion

    1. Stock market speculation

    2. Contracted money supply

    a. Low interest rates inflated money

    supply by 60%b. Jan. 1928 to Aug. 1929 discount rate

    rose from 3.5 to 6.

    c. Money supply shrank 30% from Aug.1929 to March 1933.

    3. Hawley Smoot Tariff

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    Points Debated

    1. Did hands off government policies

    cause the crash?

    2. Was the crash and speculation asymptom of monetary policy?

    3. Was Hoover really laissez-faire?

    4. Did Roosevelts policies help or prolongthe economic downturn?

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    Hoover

    Elected in 1928

    Labeled by some as laissez-faire.

    Expanded the government and raised taxes.Pursued similar policies as Roosevelt

    Signed the disastrous Hawley-Smoot Tariff

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    1. Speculationdrove up stock values.

    a. margin loansput down small amount to buy

    stocks, borrow rest. Drove up stock prices, big

    profits.

    b. $9 billion in loans

    c. stock values and prices not even close. At least

    twice their value.

    d. gambling

    e. companies gave brokers money for margin loansbecause they could make more money.

    f. Didnt reinvest profits.

    Stock Market

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    2. Stock market crashOctober 29, 1929

    a. Steep decline instead of 1 or 2 day crash

    b. Peaked in September, stock prices droppedSept. 4

    c. October 24 lost 21 points in an hour

    d. October 28 lost 38 points, or 13%

    e. October 29, Black Tuesday. 16 millionshared sold, no one there to buy.

    Stock Market

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    f. By mid-November, $30 billion lost

    g. Stocks not even 20% of prior value

    by March 1933.

    Stock Market

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    1. June 1930

    2. Details

    a. raised tariffs to an all time high

    b. 1,000 economists petitioned him notto sign

    -raise prices to consumers

    -damage exports, hurt farmers

    -promote inefficiency

    -retaliation

    Hawley Smoot

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    Effects of:

    Agr tariffs raised 20%-34%. Lost 1/3 of market

    9,000 rural banks closed.

    Booze: 36%-47%Clocks 45%-55%. $4.50 per clock

    Corn and butter doubled

    Wool: 140%

    800 items in automobile production.

    **If foreigners cant sell here, they cant buy here.

    Hawley Smoot

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    Stocks fell in 1930.

    1929: 381

    April 1930: 294

    Hawley Smoot

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    Hoovers Efforts

    1. Hawley Smoot2. Pressured business not to lay off or cut wages.

    3. Billions in business subsidies to farmers and

    business.4. Doubled the income tax in 1932

    5. Other taxes

    a. Bank checks

    b. Gas and auto

    c. Stamps

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    Hoovers Efforts

    d. Corporate and estate

    e. Earned income tax credit abolishe

    6. Government share of GNP rose from16.4 to 21.5%.

    7. Federal Reserve raised discount rate

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    1 Democrats exploited the crash

    a. Hoovervilleshomeless settlements

    b. Hoover blanketnewspaperc. Hoover flagpocket turned inside out

    d. Hoover hograbbit

    2. Irony was the Hoover was known as ahumanitarian.

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    New Deal1. Series of programs to deal with the Great

    Depression. Not a single initiative.2. Franklin Delano Roosevelt

    a. elected in 1932b. appeal

    -optimism-charisma-willingness to try anything-ability to say what people wanted to hear

    -fireside chats in 1933c. only child in wealthy family, educated atHarvard and Columbia law school, polio in 1921.

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    d. Political career: New York State Senate in 1910,Assistant Secretary of the Navy 1913-1920, ran

    for VP in 1920, and Governor of New York 1928-1932.3. Strategy of New Deal

    a. deal with financial crisis and provide shortterm relief

    b. promote industrial recovery thru federal reliefand cooperative agreements betweenmanagement and labor.c. raise commodity prices by paying farmers to

    reduce crops and herds.d. federal government to assume a larger role;FDR received broad powers to enact New Deal.

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    4. Keynesian Economics

    a. John Maynard Keynes

    b. Supply money on the demand side by givingpeople jobs, which puts money in their pockets,which they will spend.

    c. criticisms: taking money from those whocreate wealth

    5. World War I mobilization a model.

    6. Strengthening the monetary system

    a. first thing FDR did.b. closed several banks and declared a

    banking holiday

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    7. Emergency Banking Relief Actallowed goodbanks to reopen with licenses from the Treasury

    Department, provided managers to ones in trouble.8. Glass-Stengall Banking Act

    a. created the FDICinsured deposits up to$5,000

    b. separated commercial and investment bankingto prevent speculative abuses.

    9. Federal Securities Act

    a. Securities and Exchange Commission

    -regulate stock and bond market-disclosure

    10. Took U.S. off of the Gold Standard

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    First Hundred Days

    FDRs self-imposed deadline to get legislation passed

    Alphabet Soup

    1. Federal Emergency Relief Act

    a. sent money to help the states

    b. was direct relief; other half $1 for every $3 spentby the state

    2. Civilian Conservation Corp (CCC)

    a. give work to unemployed and unmarried men 18 to

    25b. worked in woods, forests, parks, etc.

    c. $30 a month, $25 went to families

    d. high school diploma

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    3. Agricultural Adjustment Administration

    a. compensated farmers for a voluntary cutback in

    productionb. plow-underdestruction of a bumper crop

    c. subsidies for surpluses

    4. Tennessee Valley Authority (TVA)

    a. overall planning for Tennessee River Valley41,000 square miles.

    b. multipurpose: dams, electricity, power plants,etc.

    c. by 1936, six dams built or underwayd. focus became cheap power

    e. controversial; step towards socialism

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    6. National Industrial Recovery Act

    a. National Recovery Administration

    -codes for business recovery

    b. Public Works Administration

    -$3.3 billion for roads, public buildings, schools,

    post offices.7. Brain Trust

    a. Roosevelts Ivy League Advisors

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    Second New Deal1. Roosevelts Critics

    a. American Business League-conservative businessmen-loss of personal liberties, property rights,

    growing welfare state.

    b. Father Charles Coughlin-radio priest national talk show with 40

    million listeners.-attacked FDR from the left; he wasnt doing

    enough.-attacked Wall Street, bankers, etc. Anti-Semitic.

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    c. Francis Townsend

    -Old Age Revolving Pension Plan

    -$200 per month to those over 60,had to be spent in 30 days.

    -Townsend Plan; basis for Social

    Securityd. Huey P. Long Kingfish

    -Elected to U.S. Senate in 1930.

    -New Deal didnt go far enough.-Had Presidential ambitions

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    -Share Our Wealth

    Liquidate personal fortunes

    Every family gets $5,000 allowance,workers get $2500 annual income

    Pension for aged, reduced working hours,free college education

    Every Man a King

    -assassinated in 1935. Received strongthird party support, bad for FDR.

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    2. Influence of critics: FDR took New Deal in a moreradical direction.

    3. Hasnt ended the depression yet.

    4. Second Hundred Daysa. Works Progress Administration

    -similar to Public Works administration

    -employed 8 million people in 7 years

    b. Social Security Act in 1935. Payroll tax

    c. National Labor Relations Act (Wagner Act)

    -rights for labor: collective bargaining, right to

    join a union, protection against unfair laborpractices.

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    New Deal and the West

    1. Dams, cheap power, hydroelectricity, and irrigation

    2. Hoover Dam

    a. Colorado River--$114 million

    b. enabled water to be sent to Los Angeles

    c. created Lake Meade, worlds largest artificiallake

    d. Imperial Valley created by irrigation, one of themost productive agricultural areas in the world.

    e. opened one million acres to cultivation

    3. Central Valley Projecta. central California

    b. water from Sacramento River in the north toarid San Joaquin Valley in the south.

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    c. made large scale farmers wealthy

    4. Grand Coulee Dam

    a. near Spokane, Washington on theColumbia River

    b. cheap power to stimulate local economy.

    c. largest project

    5. Environmental Costsa. disrupted natural flow of rivers

    b. disrupted salmon migration in Washington

    c. reduced Columbia river to a series of lakes

    6. FDR liked dams because they were popularand gave him a lot of support in the West.

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    1936 Election

    1. Republicans

    a. nominated Alf Landonb. avoided the Hate-Roosevelt crowd. Hopingothers such as Long would take votes from him.

    c. Landon actually supported many New Dealprograms.

    2. FDR won big

    a. new coalition for Democrats: farmers, ethnic

    groups, middle class people whose property wassaved by the New Deal, labor, and blacks.

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    1937 Slump

    1. Steady improvement in 1935 and 1936

    2. In August 1937, economy declined worse than1929.

    3. Reasons for:

    a. FDR cut spending; deficits and inflation

    b. less disposable income because of SocialSecurity Taxes$2 billion.

    c. private spending couldnt replace

    government spendingd. business too timid to take risks; no incentive.

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    4. Divisions in FDRs cabinet

    a. Henry Morgenthau, Jr. Less

    spending and a balanced budget.b. Harold Ickes and Harry Hopkins

    -more government spending

    -recession caused by a balancedbudget

    -more anti-trust investigations

    c. FDR sided with Ickes and Hopkins

    5. FDRs image hurt by the slump

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    Wealthy Tax ActSoak the Rich.

    1. 75% tax on all incomes above $5million2. Estate and corporate tax.

    3. Limits of

    a. Failed to raise revenues.b. Richest 1% raised their wealth afterthe tax.

    c. Tax burden fell on lower incomepeople.

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    Social Effects of the Depression1. petty theft, street corner begging, prostitution rose.2. Divorces didnt rise, too expensive. Husbands just

    left.3. Birth rate dropped4. Children

    a. 1 out of 5 didnt get enough to eat

    b. 900,000 left homeConclusion1. New Deal didnt restore prosperity, did ease suffering2. Role of federal government radically increased.

    3. South and West transformed because of governmentintervention4. Democrats became the majority party until 1994 in

    Congress5. Depression solved by boom that accompanied WWII.

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    1. What are interest rates?

    2. How do high rates influencebehavior?

    3. How do low rates influencebehavior?

    4. What happens when rates gofrom low to high?