Unit 5: The Great Depression and the New Deal 5-1: The U.S. economy crashes

The cycle of the economy – Pg. 116 Economies all go through a natural cycle of boom (expansion) and bust (recession), known as the business cycle (add to notes) the U.S. economy was in a strong boom period during the 1920’s due to extended lines of credit, and an unregulated stock market Two of the unsound practices of an unregulated stock market were: – Stock speculation: buying land or real estate for sale at a later time (banks often engaged in speculation with depositors’ money). – Buying on margin: only paying out of pocket for a certain amount of shares of stock, and using loans to buy the rest, hoping that the price of the stock keeps rising Add to notes

The market crashes – Pg. 116 Due to the collapse of a well known bank in Britain, investors were spooked, and began to sell their shares in late October, 1929 A massive sell-off of stock occurred, and brokers demanded a “margin call” for stock bought on margin The massive sell-off of stock caused prices of all stock to crash on October 29, 1929; also known as “Black Tuesday” Many in the middle class suffered the most, losing their life savings in one day Banks also began to fail as the investments of banks caused the institution to go bankrupt

Hawley-Smoot hurts the Economy – Pg. 116 In an effort to protect American industries, Congress passed the Hawley-Smoot tariff, which raised import tariffs on foreign goods Other countries retaliated against the U.S. and raised their tariff rates The effect of this was that Hawley-Smoot killed trade, which made the recession worse

“Hoovervilles” and “Hoover flags” – Pgs. 116, 118 Republican president Herbert Hoover’s economic reforms were too slow, and didn’t do enough for the common man, some argued People who lost their homes often had to live in shantytowns in big cities known as “Hoovervilles” As the recession continued and worsened through Hoover’s administration, it came to be known as the “Great Depression,” and would persist until 1941

Recap: Causes of the Great Depression – ADD to NOTES Causes of the Great Depression 1.Uneven distribution of wealth 2.Over-extended lines of credit (especially to the middle class, which they could not repay once the Depression worsened) 3.Foolish stock market practices (speculation, buying on margin) 4.Bank failures

Angry WWI Veterans – Pg. 120 Another group of people that suffered from the depression were WWI veterans Thousands had not been fully paid for their service during the war 40,000 marched on Washington D.C., and camped until they were paid President Hoover had to use the army to evict the “Bonus Army,” and tear gas was actually used on the veterans

The “Dust Bowl” and Migrant Farmers – Pg. 118 Economic failure combined with a catastrophe of nature. Over-farming and lack of crop rotation had depleted the soil of much of the Great Plains In the 1930’s great dust storms simply blew away the good topsoil, leaving farms desolate This swath of depleted farmland was known as the “Dust Bowl” Many farmers in states from Texas to North Dakota abandoned their farms and moved west to California to work on fruit and vegetable farms there

Comprehension Question Summarize and explain the causes of the Great Depression. Also, explain why America’s new middle class was particularly hard hit by the Depression.