The Great Depression

The 1930s

Essential Question: What factors caused the Great

Depression?

Cause #1 Speculative Bubble of

Stocks• Stock: ownership in a company (a share)• Stock market: buying and selling of shares

• Bull Market: steady rise in stock prices over a long periodof time

o Bulls are Strong!

• Bear Market: Steady decline in stock prices over a long period of time.

o Bears hibernate (sleep).

• Speculative Bubble: an unrealistic rise in economic values o (basically, there’s no way it’s worth that much!)

The 1920s: A Bull Market

Why would someone invest in this market?

o Speculation: buying/gambling that the market will stay strong.

How would someone get more money to invest in the stock

marketo Buying on Margin:

Borrowing $$ to buy stocks.

DJIA, S & P 500, and Nasdaq

                                                                                                                                                                                                                                                                                                                                               

“The Crash”• Black Tuesday: October 29th, 1929• The “Bubble Bursts” - Stock Prices Fall

o Owners try to get out while they can – sell, sell, sell! • But no one wants to buy.

Cause #2: Banks• Banks make their money by loaning money

o Interest: the charge issued by the bank to those it loans money• EX: Mr. Earhart’s used a bank to secure a loan for his house. The bank buys

the house for $150,000, and Mr. Earhart buys it from the bank by making payments for the next 30 years. The bank charges Mr. Earhart 4.75% interest for this loan. Mr. Earhart will actually pay $270,000 back to the bank.

• Banks loaned money to stock brokerso Brokers loaned money to people for stocks

• Stock Prices fall; brokers are broke; banks are broke, uh-oh

• Bank Runs: People run to the bank to get their savings. The bank runs out of money. The bank then closes.

• 1 in 5 banks failed during the 30s

Cause #3: Overproduction and Underconsumption

• Overproduction: Too many goods are made by factories and farmso Assembly Line and Technological Advancements

• Underconsumption: People quit buying stuffo Ex: Once everyone has a radio, people quit buying radios

Deflation And Its Cycle

Cause #4: Government Responds

Poorly• Tariffs: Congress raised taxes on imported goods

o Hawley-Smoot Tariffo Why?

• To Protect American businesses – Buy ‘Merican!

• Problem: Europe responds with their own tariffs – making it impossible to sell goods to Europeo Hurts US businesses

• The Federal Reserve Raises Interest Rateso It’s complicated. Basically, the Federal Reserve controls the money supply of

the United States (how much money is in circulation)o It can inject money into the economy by…

• 1) lowering interest rates• 2) lowering the reserve ratio• 3) buying bonds back from people

Money Supply (No Need to Write This – Just FYI)• 3 Ways to increase or decrease the

Money Supplyo Change interest rates

• Interest Rates on automobiles are at 8% and the Fed lowers the rate to 5%. o What’s going to happen?

o Change the federal reserve ratio• Banks are told to keep 10% of all money loaned out

in their vault. The Fed raises this rate to 20%.o What’s going to happen?

o Buy or sell bonds• Bond – a formal contract to agree to repay a loan

with interest

• The photograph that has become known as "Migrant Mother" is one of a series of photographs that Dorothea Lange made of Florence Owens Thompson and her children in February or March of 1936 in Nipomo, California. Lange was concluding a month's trip photographing migratory farm labor around the state for what was then the Resettlement Administration. In 1960, Lange gave this account of the experience:

• “I saw and approached the hungry and desperate mother, as if drawn by a magnet. I do not remember how I explained my presence or my camera to her, but I do remember she asked me no questions. I made five exposures, working closer and closer from the same direction. I did not ask her name or her history. She told me her age, that she was thirty-two. She said that they had been living on frozen vegetables from the surrounding fields, and birds that the children killed. She had just sold the tires from her car to buy food. There she sat in that lean-to tent with her children huddled around her, and seemed to know that my pictures might help her, and so she helped me. There was a sort of equality about it.” (From: Popular Photography, Feb. 1960).

Hoovervilles - name given to towns constructed by homeless people on unused/public land (shantytowns)

Stats (by 1932)13 million lost jobs

Unemployment is over 20%

Farm prices down 53%

40% of banks have failed

$2,000,000,000 in deposits have been

lost

TodayUS unemployment rate is at 7.2%

2.6 million jobs lost in 2008

Discouraged Workers

Dust Bowl (1931-39)

Dust Bowl• Long period of drought• Winds created dust storms• Farmers head west

Bonus ArmyWWI Vets Want an Advance

Results

Army Attacks Army2 Dead, Very Bad Press

Franklin Delano Roosevelt Elected in 1932, 36, 40, & 44 (4 terms)

FDR• Distant Cousin of Teddy• Harvard with Columbia Law Degree• New York State Senator• Wilson’s Asst. Secretary of Navy• VP candidate in 1920• Polio in 1921 – paralyzed• Governor of New York

o Wife Eleanor

Eleanor Roosevelt (1884-1962)

• Civil and Woman Rights Leader• US Delegate to United Nations (1945-52)

Chaired the committee that drafted the UN Declaration of Human Rights

The First New Deal• Hundred Days

o 15 major economic laws passed

• Fireside Chats – FDR’s radio addresses to the public, designed to ensure confidence

Roosevelt Response• March of 1933 – 25,000 vets allowed to enroll in

the Civilian Conservation Corp

Civilian Conservation Corps(CCC)

Changes• Emergency Banking Relief Act• Securities and Exchange Commission (SEC)• Federal Deposit Insurance Corporation (FDIC)• Agricultural Adjustment Administration (AAA)

o Paying farmers not to grow foodo Hurt small farmers

• Home Owner’s Loan Corporation (HOLC)• Civilian Conservation Corps (CCC)

o 3 million in 1942• Emergency Relief Administration (ERA)• Public Works Administration (PWA)• Civilian Works Administration (CWA)

Public Works Administration (PWA)

Agricultural Adjustment

Administration (AAA)

Emergency Relief Administration (ERA)

• Denver, CO – 1,250 workers employed

• Works Progress Administration

(WPA)

8.5 Million Workers

What did these programs do?• Jobs for the unemployed• $$$ for people to spend• Businesses make money

• More money into the economy

Where did the government get all of this money?

• CWA cost $1 billion in first 5 months• The choice was borrowing money or increasing

taxes• Deficit spending – borrowing money to pay for

programso No more balanced budget

Other Developments• Social Security Act – $$$ for retirees• Unemployment benefits• Welfare for those in need• No Child Labor• 40-Hour Work Week• 1st Minimum Wage

• Government became a safety net for Americans and the economy

Labor Problems• Sit-down strikes

Flint, MI (1937)

Court Packing• Supreme Court declared some New Deal

laws unconstitutional (EX: AAA)• Solution = change the Supreme Court• 10 yrs and over 70, retire or allow a new

justice to be appointed• Challenged Separation of Powers • Mixed Results – put pressure on court, but

ticked-off Congress