Read the article and take notes on the following: Causes of the stock market crash Causes of the stock market crash Public reaction Public reaction Broker’s reactions Broker’s reactions Government’s response Government’s response Optimism about rebuilding of stock market and aiding investors Optimism about rebuilding of stock market and aiding investors Speculated short-term and long-term economic effects Speculated short-term and long-term economic effects Speculated political and social effects Speculated political and social effects

October 11—How is our current economic situation similar and different to what occurred during the Great Depression?

The Great Depression vs. The Great Recession

Stock Market Crash-1929 October 28—DOW dropped 13% October 28—DOW dropped 13% October 29 (Black Tuesday)—it plunged 12% more. October 29 (Black Tuesday)—it plunged 12% more. Over the next 3 years, the US stock market declined 89%. Over the next 3 years, the US stock market declined 89%. The index didn’t regain its 1929 peak until The index didn’t regain its 1929 peak until 1954.

Stock Market Crash-1929

Stock Market &q=INDEXDJX:DJI &q=INDEXDJX:DJI &q=INDEXDJX:DJI &q=INDEXDJX:DJI

Purchasing Power During Great Depression deflation was the major issue. During Great Depression deflation was the major issue estimated inflation = 1.6% 2010 estimated inflation = 1.6%

Purchasing Power 1929—More than half of US families lived on the edge of or below the minimum subsistence level 1929—More than half of US families lived on the edge of or below the minimum subsistence level Poverty rate in 2009 =14.3% which is 43.6 million Americans Poverty rate in 2009 =14.3% which is 43.6 million Americans 2008 = 13.2 percent, up from 12.5 percent in = 13.2 percent, up from 12.5 percent in There were 39.8 million people in poverty in 2008, up from 37.3 million in There were 39.8 million people in poverty in 2008, up from 37.3 million in 2007.

Purchasing Power As of 2008, Household debt increased from about 50% of the GDP in 1980 to a peak of 100% in Households owe as much as the entire US economy can produce in a year. As of 2008, Household debt increased from about 50% of the GDP in 1980 to a peak of 100% in Households owe as much as the entire US economy can produce in a year. Household income dropped 9.8% from December 2007 to June Income dropped more after the recession officially ended in June Household income dropped 9.8% from December 2007 to June Income dropped more after the recession officially ended in June Income dropped 3.2% Dec 2007-June 2009 Income dropped 3.2% Dec 2007-June 2009

Purchasing Power—Source: NY Times

US Poverty Thresholds One person--$10,590 One person--$10,590 Under 65 years-- $10,787 Under 65 years-- $10, years and over-- $9, years and over-- $9,944 Two people--$13,540 Two people--$13,540 Householder under 65 years--$13,954 Householder under 65 years--$13,954 Householder 65 years and over--$12,550 Householder 65 years and over--$12,550 Three people--$16,530 Three people--$16,530 Four people--$21,203 Four people--$21,203 Five people--$25,080 Five people--$25,080 Six people--$28,323 Six people--$28,323 Seven people--$32,233 Seven people--$32,233 Eight people--$35,816 Eight people--$35,816 Nine people or more-- $42,739 Nine people or more-- $42,739

Income inequality— 2/income-inequality-in-america-chart- graph 2/income-inequality-in-america-chart- graph 2/income-inequality-in-america-chart- graph

Income inequality

Income Inequality

A Harvard business prof and a behavioral economist recently asked more than 5,000 Americans how they thought wealth is distributed in the United States. Most thought that it’s more balanced than it actually is. Asked to choose their ideal distribution of wealth, 92% picked one that was even more equitable.

Income inequality

US International Trade 1929—Demand for US goods declines 1929—Demand for US goods declines 2008—Our number one export is our debt. We sell $700 billion of our debt a year to foreigners. 2008—Our number one export is our debt. We sell $700 billion of our debt a year to foreigners.

US Debt = 62.3% of GDP as of 2010 US Debt = 62.3% of GDP as of 2010

US Trade As of December 2008, U.S. exports of goods and services grew by 12.0% in 2008 to $1.84 trillion, while imports increased 7.4% to $2.52 trillion. As of December 2008, U.S. exports of goods and services grew by 12.0% in 2008 to $1.84 trillion, while imports increased 7.4% to $2.52 trillion. Exports comprised 13.1% of U.S. GDP in To put in historical terms, exports were 9.5% of U.S. GDP five years earlier (2003), and 5.3% 40 years ago (1968). Exports comprised 13.1% of U.S. GDP in To put in historical terms, exports were 9.5% of U.S. GDP five years earlier (2003), and 5.3% 40 years ago (1968).

US Exports

Credit Structure 1929-US allies could not pay their debt because Germany and Austria could not pay the reparations and the US was not willing to forgive or reduce the debt US allies could not pay their debt because Germany and Austria could not pay the reparations and the US was not willing to forgive or reduce the debt. About 4 million homes have been repossessed since About 4 million homes have been repossessed since million loans are currently delinquent. It would take 4 years for the market to absorb those houses. 4.2 million loans are currently delinquent. It would take 4 years for the market to absorb those houses.

Home Foreclosures

Tariffs 1929—Protective Tariffs 1929—Protective Tariffs Today—Free trade Today—Free trade

International Economy Great Depression--European banks began to fail in Germany had high inflation. Great Depression--European banks began to fail in Germany had high inflation. 2008—Stocks plunge in Europe and Asia. Tokyo market falls 9.4% on October 8 which is its worse decline since the 1987 crash. 2008—Stocks plunge in Europe and Asia. Tokyo market falls 9.4% on October 8 which is its worse decline since the 1987 crash. 2009—Much like the US, international stock markets have stabilized. 2009—Much like the US, international stock markets have stabilized.

International Economy Today European Union debt, especially PIIGS (Portugal, Ireland, Italy, Greece and Spain) European Union debt, especially PIIGS (Portugal, Ireland, Italy, Greece and Spain) Japanese earthquake and tsunami Japanese earthquake and tsunami

Bank Failures during Great Depression

Bank failures Today By 2007 the financial sector’s debt was equivalent to 116% of the GDP, compared with a mere 21% in By 2007 the financial sector’s debt was equivalent to 116% of the GDP, compared with a mere 21% in To date, US banks have admitted to $334 billion in losses and write-downs. They were able to raise $235 billion in new capital but that is still a $99 billion net loss. To date, US banks have admitted to $334 billion in losses and write-downs. They were able to raise $235 billion in new capital but that is still a $99 billion net loss. 140 banks failed as in banks failed as in banks failed in banks failed in banks failed in 2011 as of September banks failed in 2011 as of September 2011.

Interest Rates during the Great Depression

Interest Rates Today Since the credit crunch began in August 2007, Bernanke has repeatedly cut the federal funds rate from 5.25% down to an effective rate at one point last week of about 0.25%. Since the credit crunch began in August 2007, Bernanke has repeatedly cut the federal funds rate from 5.25% down to an effective rate at one point last week of about 0.25%. The Federal Reserve has pumped about $1.1 trillion into the financial system in the past 13 months. The Federal Reserve has pumped about $1.1 trillion into the financial system in the past 13 months. Fed said it would leave the interest rate at 0.25% for “an extended period.” Fed said it would leave the interest rate at 0.25% for “an extended period.” Policy makers also announced that they would stretch out the Fed’s program to buy up almost $1.5 trillion worth of mortgage-related securities through the end of March. That program is aimed at keeping mortgage rates low and propping up the housing market. Policy makers also announced that they would stretch out the Fed’s program to buy up almost $1.5 trillion worth of mortgage-related securities through the end of March. That program is aimed at keeping mortgage rates low and propping up the housing market.

US GNP Gross National Product = an economic statistic that include GDP plus any income earned by residents from overseas investments minus income made by overseas residents Gross National Product = an economic statistic that include GDP plus any income earned by residents from overseas investments minus income made by overseas residents 1929—plummeted from over $104 billion to $76.4 billion in —plummeted from over $104 billion to $76.4 billion in 1932 Today- $13.13 trillion Today- $13.13 trillion

US GNP

US Unemployment 25% of US workforce was unemployed by 1932 and it never dropped below 15% the rest of the decade. 25% of US workforce was unemployed by 1932 and it never dropped below 15% the rest of the decade. US unemployment rate as of August 2008 is 6.1%. US unemployment rate as of August 2008 is 6.1%. US unemployment rate as of August 2009 is 9.7%. US unemployment rate as of August 2009 is 9.7%. US unemployment rate as of August 2011 is 9.1% US unemployment rate as of August 2011 is 9.1%

US unemployment during Great Depression

US Unemployment during Great Recession The average length of time a person who lost a job was unemployed increased to 24.1 weeks in June 2009, from 16.6 weeks in December 2007, according to the federal Bureau of Labor Statistics. The average length of time a person who lost a job was unemployed increased to 24.1 weeks in June 2009, from 16.6 weeks in December 2007, according to the federal Bureau of Labor Statistics. Since the end of the recession, that figure has continued to increase, reaching 40.5 weeks in September, the longest in more than 60 years. Since the end of the recession, that figure has continued to increase, reaching 40.5 weeks in September, the longest in more than 60 years.

US unemployment during Great Recession e?ds=z1ebjpgk2654c1_&met_y=unemploy ment_rate&tdim=true&fdim_y=seasonalit y:S&dl=en&hl=en&q=us+unemployment+ rate#ctype=l&strail=false&nselm=h&met_ y=unemployment_rate&fdim_y=seasonalit y:S&scale_y=lin&ind_y=false&rdim=state &ifdim=state&tdim=true&hl=en&dl=en e?ds=z1ebjpgk2654c1_&met_y=unemploy ment_rate&tdim=true&fdim_y=seasonalit y:S&dl=en&hl=en&q=us+unemployment+ rate#ctype=l&strail=false&nselm=h&met_ y=unemployment_rate&fdim_y=seasonalit y:S&scale_y=lin&ind_y=false&rdim=state &ifdim=state&tdim=true&hl=en&dl=en e?ds=z1ebjpgk2654c1_&met_y=unemploy ment_rate&tdim=true&fdim_y=seasonalit y:S&dl=en&hl=en&q=us+unemployment+ rate#ctype=l&strail=false&nselm=h&met_ y=unemployment_rate&fdim_y=seasonalit y:S&scale_y=lin&ind_y=false&rdim=state &ifdim=state&tdim=true&hl=en&dl=en e?ds=z1ebjpgk2654c1_&met_y=unemploy ment_rate&tdim=true&fdim_y=seasonalit y:S&dl=en&hl=en&q=us+unemployment+ rate#ctype=l&strail=false&nselm=h&met_ y=unemployment_rate&fdim_y=seasonalit y:S&scale_y=lin&ind_y=false&rdim=state &ifdim=state&tdim=true&hl=en&dl=en

Make a venn diagram comparing the Great Depression and the current recession. Use this discussion and notes from class.

How did the Great Depression affect African Americans? They experience more unemployment, homelessness, malnutrition, and disease than they had in the past and more than whites experience. They experience more unemployment, homelessness, malnutrition, and disease than they had in the past and more than whites experience. More than half still lived in the South, but approx. 400,000 moved to the North. More than half still lived in the South, but approx. 400,000 moved to the North. 2 million, half the African American population of the US—were on some form of relief by million, half the African American population of the US—were on some form of relief by 1932.

How did the Great Depression affect Latinos? Approx. half a million Latinos left the US for Mexico in the first few years of the Great Depression. Approx. half a million Latinos left the US for Mexico in the first few years of the Great Depression.

How did the Great Depression affect women? By the end of the Depression, 25% more women were working than had been at the beginning. By the end of the Depression, 25% more women were working than had been at the beginning. Black women suffered massive unemployment because of the decline in domestic service jobs. Black women suffered massive unemployment because of the decline in domestic service jobs. As many as half of all African American women lost their jobs in the 1930s. As many as half of all African American women lost their jobs in the 1930s.

UN p Herbert Hoover Herbert Hoover Agricultural Marketing Act Agricultural Marketing Act Hawley-Smoot Tariff Hawley-Smoot Tariff International financial panic of the spring of 1931 International financial panic of the spring of 1931 Reconstruction Finance Corporation (RFC) Reconstruction Finance Corporation (RFC) “Bonus Army” “Bonus Army”

AP p Election of 1932 Election of 1932 Emergency Banking Relief Act of 1933 Emergency Banking Relief Act of 1933 Glass-Steagall Banking Reform Act Glass-Steagall Banking Reform Act

UN Ch 26 UN Emergency Banking Act Emergency Banking Act Economy Act Economy Act Glass-Steagall Act Glass-Steagall Act Agricultural Adjustment Act Agricultural Adjustment Act National Industry Recovery Act National Industry Recovery Act Tennessee Valley Authority Tennessee Valley Authority Federal Emergency Relief Administration (FERA) Federal Emergency Relief Administration (FERA) UN p Second New Deal Second New Deal National Labor Relations Act National Labor Relations Act Social Security Act Social Security Act Works Progress Administration (WPA) Works Progress Administration (WPA) “Court-packing plan” “Court-packing plan” Recession of 1937 Recession of 1937 Limits and legacies of New Deal Limits and legacies of New Deal Fair Labor Standards Act Fair Labor Standards Act