Unit 6 The Great Depression

US History – The Great Depression Objectives: Students will analyze the causes of the Great Depression, including: overextension of credit, overproduction in agriculture, buying on margin, the crash of the stock market, and protectionist tariffs. Students will analyze an article from the Federal Reserve, and determine the most important factor of causing the Great Depression. Standards DCAH 12a: Analyze the various causes of the Great Depression, including the 1929 Stock Market Crash.

Great Depression What was the Great Depression? Great Depression: A period lasting from 1929 to 1941 in which the economy suffered and unemployment soared. What caused this decade-long depression? Many different things… *In your notes, respond in paragraph form: According to David Wheelock of the Federal Reserve, what reason for the Great Depression has stood the test of time?

BELL WORK – 1/11 1) Read chapter 9 Lessons 1 – 3 (*McGraw Hill Textbook) 2) Study the following vocabulary for a QUIZ TODAY (will be fill in the blank) Lesson 1 Lesson 2 Great Depression 1. Breadlines Herbert Hoover 2. Hoovervilles Stock market 3. Hoboes Bull Market 4. Tenant Farmers Speculation 5. Okies Buying on margin 6. Dust Bowl Black Tuesday 7. Soap Operas Bank run 8. Dorothea Lange Protective Tariff 9. John Steinbeck Hawley-Smoot Tariff 10. Wizard of Oz Federal Reserve Board Business cycle

Causes Hawley-Smoot Tariff Global Economic slowdown Contraction of money supply Global Economic slowdown Uneven Distribution of income Great Depression Run on banks = banks fail Less consumer spending Stock Market Crash Speculators= buying on margin Causes

The Great Depression Prosperity Hides Trouble Herbert Hoover became the President in March 1929 (Republican). Farmers bought/mortgaged more land and equipment during WWI to meet the demands for food (1/4 of the U.S. Workforce). Farms were getting bigger and yielding bigger crops at harvest. Hard-pressed to pay their debts, forced to sell in a glutted and competitive world market, and confronted by several natural disasters, farmers did not share in the boom of the 1920s.

Uneven Distribution of Wealth An uneven distribution of income led to unstable economic footing During the 1920s the rich became much, much richer, while industrial workers simply became less poor. The wealthiest few did not buy enough to keep the economy booming. A healthy economy needs more people to buy more products, which in turn creates even more wealth (Under consumption). Americans bought automobiles, appliances, radios, and other goods on credit (Living Beyond Their Means).

The Stock Market Crash 1920s Stock Market Stock = a share of ownership in a corporation Stock market = a system for buying and selling stocks NYSE = New York Stock Exchange The 1920s had been a time of economic growth and optimism Stock prices rose dramatically in the late 1920s Typically, a stock’s price reflects investors’ perception of the company’s value For example, if a company has strong sales and is expected to have good sales in the future, investors might see that as a good sign and invest in the company. This would cause the value of the company to increase – and stock prices would rise. As this happened over time, many investors bought stock on the chance that they could turn a quick profit. These investments were not based on the ACTUAL value of the company, but on the perceived chance of a return on their investment. This is called SPECULATION *When the excitement about a stock ends, prices can drop quickly

The Stock Market Crash Contributing Factors to the Stock Market Crash Speculation: Practice of making high-risk investments in hopes of obtaining large profits. Margin Call: demand by a broker that investors pay back loans for stocks purchased on margin Many speculators saw opportunities to get rich quick. Many speculators borrowed money to buy stock. This is called BUYING ON MARGIN Buying on Margin can be risky – if prices decline (below original value), investors still owe money they borrowed, but the stocks are worthless. Speculators who were “buying on margin” were investing in companies, with money that wasn’t theirs… This created an artificial “bubble” in which stock values did not reflect the REAL values of companies When REAL values of companies started to be realized, investors lost confidence September 3, 1929, the stock market began to sputter and fall (Loss of Confidence).

The Stock Market Crash Black Tuesday: (October 29, 1929) More than 16 million shares of stock were sold as the stock market collapsed in the Great Crash. Entire Fortunes were Wiped Out Investors who bought Stock on Margin Lost Everything

BLACK TUESDAY

Banking Panic After the stock market crash, frightened bank depositors feared for their money and tried to withdraw it from their banks. Led to a “run” on banks that resulted in banks losing all of their reserves. (bankruptcy)

PANIC!!!

Business Cycle: Periodic growth and contraction of the economy Business Cycle: Periodic growth and contraction of the economy. (leave space blank above – we will draw in class tomorrow)

Federal Reserve Monetary Policy The role of the Federal Reserve In 1929, worried about investor overspeculation, the “Fed” limited the money supply to discourage lending. As a result, there was too little money in circulation to help the economy after the stock market crash. Not enough banks belonged to the Federal Reserve system, so the FED could not bail them out with loans when the panics ensued… Business leaders believed that the survival of their companies depended on production cutbacks, to maintain price levels, and layoffs, to reduce payroll (Led to High Unemployment/Closing of Businesses).

Unemployment increases Purchasing Power Decreases Productivity Decreseases Employment Cycle: For goods to be purchased, purchasing power had to be high. If unemployment was high, it resulted in less purchasing power, and thus, less production and more unemployment.

Protective Tariffs Protectionist trade policies lead to global disaster To protect American businesses, the government passed the Hawley-Smoot Tariff: Raised prices on foreign import. Destroyed international trade. Led to retaliation from other countries – which led to a further slow down of trade *The European problems of reparation payments, war debt payments, and international imbalance of trade had already created a shaky economic structure. The Great Depression had become a global nightmare.