The Great Depression

CAUSES

Warning Signs in the 1920’s

1. Major industries (steel, textiles, railroads) losing money

2. Less consumer demand for “Boom Industries” like auto, housing, and consumer goods.

3. Farmers suffer most

- Boosted production = lower prices = lower income

4. Consumers have less $

5. Americans living on Credit

Election of 1928

• Repub. Herbert Hoover defeats Dem. Alfred E. Smith

• Hoover = dry, not a Catholic, republican economic prosperity (thanks Coolidge)

“The Long Bull Market”

• Stock Market: system for buying and selling shares of companies

• Stock markets can have a long period of rising stock prices called a bull market.

• S.M. soars, investors begin buying stock on margin.

• Margin: a small cash down payment on the actual worth of the stock.

• $1000 = $10,000 in stock $9000 was loaned to buyer from stockbroker who held stock as collateral.

As long as stock prices keep rising buying on margin is “safe”

Example:• Investor borrows money from a

stockbroker to buy $11,000 worth of stock

• Waits a short time for stock to go up $12,000

• Investor sells stock, repays the loan and bada-bing $1,000 profit

The Problem

• Margin inflates stock prices

• Broker could issue a margin cell : demand to repay loan immediately.

• Therefore investors super sensitive to any fall in stocks.

The Great Crash

• Bull market only lasts as long as investors continue putting new money into it.

• By the late half of 1929, the market ran out of new customers.

• Black Tuesday: October 29, 1929 – stocks lost $10-$15 billion in value

• $30 Bill lost by November – equal to total wages earned in U.S. in 1929

• Stock Market crash did not cause the Great Depression

Bank Runs

• People panic and pull their $ out of banks

• 25% of all banks close

• Wiped out 9 million individual savings account.

Why?!1. Uneven distribution of income

- Top 5% of Americans earn 30% of nation’s income- 1% have 75% income increase- “normal” Americans have 9% increase

- Americans buying on installment plans can’t pay off debt = no $ to buy other goods

2. Lack of foreign markets for exports- no loans to foreign countries = no selling- Hawley-Smoot Tariff: raised highest average tariff rate

3. Federal Reserve mistakes- Didn’t raise interest rates

The Great DepressionEFFECTS

What Happened?

• Speculation

• Black Tuesday

• Overproduction by farms and factories

• Too much money was in the hands of few

• Credit

The Depression WorsensConditions in the Cities

• Paralyzing fear and humiliation caused people to stay in houses they couldn’t afford.

• Bailiffs - Court appointed officers ejected nonpaying tenants.

• Newly homeless make shacks in communities called shantytowns.

• Shanty towns blamed on President called Hoovervilles.

• Soup Kitchens and Bread Lines were set up by private charities

• Hobos: men looking for work and “wandering”

Impact on Blacks and Latinos• Increased

violence to A.A. in competition for jobs

• Deported Latinos to Mexico, some volunteer some forced.

The Dust Bowl

• Plows uprooted wild grasses holding soil moisture.

• Soil dries to dust & combines w/ windstorms from Dakotas to Texas called the “Dust Bowl”.

• Migrants from Oklahoma to the west called “Okies”.

Effects on Family

• Men lost their hope

• Many men leave families out of humiliation

• Married women not allowed to work

• Children have serious health problems due to malnutrition or dust

Psychological Problems

• Suicide rate rose by 30%

• Admission to mental hospitals rises

• Loss of faith in government and presidential seat.