The Great Depression The Great Depression

Great Depression: My Q’s What was “buying on margin”? How did stock market speculation and consumer debt help cause the Great Depression? How did the Federal Reserve’s monetary policies help cause the Great Depression? What was the New Deal and how did it change the role of the federal government?

Lending Problems Americans in the 1920s thought that business in American would continue to thrive. However, they would be incredibly wrong as thoughtless lending done by banks would help cause the Great Depression. They lent tons of money to people who bought out of their means on credit and the banks lent even more money to speculators.

Federal Reserve & Money Supply To diminish lending and speculating, the Federal Reserve constricted the money supply, or, in other words, made less money available to the public. This action, however, backfired as economic conditions worsened and many speculators and businesses could not repay debts and loans.

Speculating Another leading factor that helped cause the Great Depression to occur was the recklessness of speculators on Wall Street. Many speculators, or investors, were buying on margin. When speculators bought on margin, they were basically buying stock with the bank’s money, not their own. These speculators thought that once they made profits on Wall Street, they would just pay back the banks with interest.

Consumer Debt Also at this time, many families fell into debt because they were obsessed with buying all the newest technology (refrigerators, radios, cars, etc.). Often families did not have the money on hand to pay for these new items, so they bought them on credit from the bank. However, consumer debt only worsens the Great Depression because when many factories and businesses close, families have little or no income to repay their debts.

The Stock Market Crashes On October 29, 1929, the Stock Market officially crashed, as worried speculators tried to get rid of 16 million stocks that had turned almost worthless. After these stocks became worthless, speculators now had to spend years trying to repay the loans they had gotten from the banks. Many lost their life savings and fortunes.

The Effects of the G.D. Farm prices fell 60% and to make up for these losses farmers often had to sell their livestock, tractors, and sometimes their entire farms. Unemployment in 1933 was 25% nationwide, while in 1932 in Toledo the unemployment rate was 80%! The suicide rate climbed 30% between 1928-1932. In Youngstown, Ohio a 57 year old father of ten jumped to his death from a local bridge after being given their eviction notice. African Americans, Hispanics and Asian Americans lost their jobs to white laborers who did not have anywhere else to work.

FDR & The New Deal Franklin Delano Roosevelt defeated Herbert Hoover in the 1932 presidential election mainly because of his promotion of what he called America’s “New Deal.” The New Deal was the federal government’s attempt to help the economy recover by providing work for the unemployed and poor.

The New Deal & The Expanding Role of the Government Before the Great Depression, most government leaders believed in laissez-faire, or a belief that the government should not be involved in the economic well-being of the American people. The New Deal drastically changes this! The federal government becomes an active participant in the economic well-being of Americans by giving the unemployed jobs and providing financial security for the elderly, disabled, and poor.

Alphabet Soup! FDR came up with a ton of acronyms to describe the federal organizations that the New Deal had created to put people back to work. For instance, the Civilian Conservation Corps (CCC), employed a half a million men working to conserve national parks and forests. Also, the Tennessee Valley Authority (TVA), hired thousands of workers to bring electricity to the impoverished areas of the South by building hydroelectric dams.

Alphabet Soup Continued! The Agricultural Adjustment Administration (AAA) actually paid farmers to plow under their crops and slaughter pregnant pigs and cows in order to raise the prices of farm goods! The Works Progress Administration (WPA) employed over 8 million workers and pumped $11 billion into the economy. WPA workers built roads and schools, collected oral histories and painted murals.

What do you think happened when the government ordered farmers to kill all their pregnant animals?

Social Security Act Perhaps the most enduring legacy of the New Deal was the creation of Social Security. By implementing Social Security, the federal government began to take tax money directly out of paychecks to fund workers’ retirement savings, provide benefits for victims of accidents, and provide financial aid to disabled people and dependent women with children.