THE GREAT DEPRESSION Chapter 27.2

The US Economy in the 1920’s Economic Growth  After WWI The US was an economic power but towards the end of the 20’s they face a major crash  During WWI The US supplied much of the world with food and supplies needed to fight  Growth was steady through the 1920’s  Industries started making more cars, radios, vacuums, washing machines and more home appliances  During the 1920’a the overall value of the stocks traded at the nation’s stock markets rose 400%  Many people flocked to buy stocks and even borrowed money to be able to invest in stocks (which is called buying on margin)  This only drove the prices higher

The US Economy in the 1920’s Hidden Problems  The new wealth being created was not distributed evenly  The richest 1% of the country population held 19% of the nations wealth  Credit was very easy to attain which increased spending of money that people did not actually have  This allowed the US economy to grow  However by the end of the decade consumers reached their credit limit and could not buy as much as they previously were

The US Economy in the 1920’s The Stock Market Crash  Spending had significantly decreased so stock investors feared the their stock would loose it’s value and they began to sell off their stocks  Large investors began to sell of their stocks which convinced others they needed to do the same  The huge sell off began  October known as Black Thursday investors sold off 16 million shares  With few people wanting to buy those shares the market was flooded  Stock prices collapsed  The Stock Market crashed  Many investors who had borrowed money to buy the stock had to sell their stocks at a loss to help repay their loans  Many banks had provided loans and now these people could not pay back their loans which devastated the banking industry and the American economy  The American industry soon came to a halt

The Depression Spreads Following the stock market crash American economy took a severe downward dive and the economic downturn became known as The Great Depression and was caused by several factors Industry Slows  Industry began to slow down before the stock market crashed but was worsened by the crash  Factories had to lay off workers  By in 4 workers were unemployed and faced poverty.  This meant they could not buy food and goods for their families and this hurt the industry even more  Many people that had savings banks feared they would lose their money because banks were struggling to stay in business so they withdrew their money causing banks to fail

The Depression Spreads Government Response  US President Herbert Hoover believed the US should have limited involvement in the business affairs  Many of his advisors thought it was a normal cycle of the type of capitalist economy The US had and did not think the gov’t should get involved  Eventually Hoover got somewhat involved but not enough to really help

The Depression Spreads Roosevelt Elected  1932 FDR was elected as the next US President  FDR had the opposite view of Hoover and got the gov’t more involved in the lives of the Americans  He help start the program known as the New Deal  New Deal was aimed at helping the Great Depression  It used gov’t money to help jump start the US economy  It created many public work programs which created many jobs  Gave gov’t money for the welfare program  Created new regulations to help protect the Stock Market and the Banking system

The Depression Spreads New Economic Theories  John Maynard Keynes was a British economist who believed economic downturn could be prevented by gov’ts spending money even if it meant having an unbalanced budget  He said that providing jobs would allow people to have an income and would allow them to spend money which would put money back into industry and the economy which would end the depression  This initially worked for the US economy but the Great Depression lingered throughout the 1930’s.

Worldwide Depression Before the Crash  Before 1929 American was responsible for a majority of the rest of world’s imports and lending  The American Great Depression directly effected the rest of the world  Most European countries were still struggling because of the war  Many Allied Powers were in a lot of debt to the US  In GB high interest rates led to decreased spending which resulted in high un-employment  The German economy was horrible  Due to the high reparations they had to pay after WWI which led to inflation, resulting in their money becoming valueless, ending in economic depression  In 1927 Japan had to force their banks to shut down  The US Great Depression was just another economic turn for the worst for these other countries

Worldwide Depression A Slowdown in Trade  1930 President Hoover signed the Smoot-Hawley Tariff Act which placed high taxes on import goods to encourage Americans to buy American products  This led other countries around the world to place high taxes on any American good that was imported The world trade almost stopped This made many countries economies collapse because they depended on the money that came in from exporting goods Ex) Japanese silk dropped drastically in price when the demand dropped. Silk exports made up 20% of the countries income. This was one reason Japan entered into an economic depression

Worldwide Depression Political Impact  The postwar era made many countries politically unstable  New nations were forming from broken empires which left those regions politically unstable  GB and France had the formation many new gov’ts because the citizens were in desperate need of someone who could help  In other countries extremist were able to gained control as economies worsened  Germany- Nazi party They blamed the Jews for their economic troubles  Italy- Mussolini  Tightened control on the entire nation  The wide spread misery made an ideal climate for the rise of powerful leaders who promised to restore their nation to glory