Chapter 22 The Great Depression Begins Section 1 Causes of the Depression

The Election of 1928 Herbert Hoover  Republican  Secretary of Commerce  Former head of Food Administration

The Election of 1928 Alfred E. Smith  Democrat  4-time governor of New York  1 st Roman Catholic to be nominated for president

The Election of 1928 (issues) Religious differences b/w candidates played a major role in the campaign. The Catholic issue led to a smear campaign against Smith Republicans took full credit for prosperity of the 1920s.

Hoover Wins Election of 1928

The Long Bull Market The stock market was established as a system for buying and selling shares of companies. A long period of rising stock prices is known as a bull market. Many Americans invested due to the prosperity of the 1920s.

The Long Bull Market Bull market ctd to go up, & investors bought stocks on margin, making a small cash down payment. This is safe if prices ctd to rise. If prices fall, broker cld issue a margin call demanding that the investor repay the loan immediately.

The Long Bull Market New investors bid prices up w/o looking at a company’s earnings and profits. Speculation occurred when investors bet on the market climbing and sold whatever stock they had in an effort to make a quick profit.

The Great Crash By late 1929, prices dropped due to lack of investors and the bull market ends. Resulted in many margin calls, which caused customers to place their stock up for sale, resulting in the market plummeting further.

The Great Crash October 29, 1929 – BLACK TUESDAY Resulted in a $10 - $15 billion loss in value. **This did not cause the Depression, but it did undermine the economies ability to hold out against its other weaknesses.**

Banks in a Tailspin The crash weakened the nation’s banks. Banks lost money on their investments, and speculators defaulted on loans. Gov’t didn’t insure bank deposits, customers lost their money if a bank closed.

Banks in a Tailspin Banks runs resulted as many bank customers withdrew their money at the same time, causing the bank to collapse.

The Roots of the Great Depression The uneven distribution of wealth in the U.S. added to the country’s economic problems – the top 5% earned 30% of the country’s income. More than 2/3 of the nation’s families earned less than $2500 a year.

Roots of the Great Depression Worker’s wages did not increase fast enough to keep up with quick production of goods. Sales decreased, workers were laid off. Many bought on installment plans, and paying these off left little money for other goods.

Roots of the Great Depression Hawley-Smoot Tariff – intensified the Depression by raising the tax on imports. In return foreign countries raised their tariffs on American products.

Mistakes of the Federal Reserve Instead of raising interest rates to stop speculation, the Federal Reserve Board made the mistake of lowering the rates. This encourage banks to make risky loans and misled business owners into thinking the economy was still expanding.

End of Section 1 Next: Section 2 Life During the Depression