Boom Turns to Bust: The Great Depression Focus Question: How did the prosperity of the 1920s give way to the Great Depression?

Free Market Business Cycle

The Twenties: Endless Prosperity? Consumption goes up Gross National Product (GNP) goes up Stock Market goes up Times were good in America Republican Presidents Harding & Coolidge took the credit In 1928, Herbert Hoover elected President

Underneath the Glitter, All Was Not Gold Agricultural Sector Hurting Badly Farmers ¼ of the total U.S. work force To meet increased food production needs in WWI, farmers had bought land & farm machinery With decreased demand, farmers struggling: Rural depression

Causes of the Depression: Prosperity Built on Cars & Construction Most of economic growth in country based on two industries: automobiles & construction By 1928, market for cars saturated Construction bubble “pops”!

Causes of the Depression: Unequal Distribution of Wealth Despite apparent prosperity of the 1920’s, 50% of the U.S. population lived on a subsistence income 1% of Americans controlled 40% of the country’s wealth

Causes of the Depression: Easy Credit Expansion of credit partially hides the problem: installment plan 80% of radios & 60% of cars bought on installment plan Americans accumulate more debt When economy tanks, Americans in serious trouble

Causes of the Depression: Stock Speculation Related to the credit crunch was the habit of “buying on margin” Soaring stocks made the stock market seemed like an easier way to make money than savings accounts When market crashes, people lose everything!

Causes of the Depression: Reparations & War Debts Versailles Treaty mandated Germany pay “reparations” $$$ to Britain & France Germany could not afford them and borrowed money from U.S. England and France owed money to U.S. and paid their debts to U.S. from reparation payments U.S. continues loans to Germany What will happen when economy goes South?

Causes of the Depression: High Tariffs Smoot-Hawley Tariff Act increased tariffs on imports to the U.S. by up to 50%. This tariff made the depresssion the Great Depression Put into law in June 1930 by the Republican Congress (That would be at point A on the GDP chart.) Smoot-Hawley was indeed bad. Other countries followed the U.S. tariff policy and U.S. exports to them contracted. The U.S. GDP went down further

The Stock Market Crashes Black Tuesday: October 29, 1929 Billions of dollars lost People who bought on margin lost everything they had Black Tuesday provides the spark for the Great Depression: 1929-1940 http://www.youtube.com/watch?v=DXFAf-V9Qpk&safety_mode=true&persist_safety_mode=1&safe=active

Cities Devastated Banks Collapse Factories Close; unemployment grows Misery & Despair; Middle-class men hit especially hard Brother Can You Spare a Dime http://www.youtube.com/watch?v=4F4yT0KAMyo

Rural Areas Suffer Crop Prices fell further: in 1919, a bushel of wheat sells for $2.16; in 1932, $0.38 Farmers lose 1/3 of their income Nearly one million farmers lost their farms between 1930-1934 Environmental disaster: Dust Bowl of the 1930’s http://www.youtube.com/watch?v=vkpKRxR9rA8