Crash and Depression Chapter

Setting the Scene  October 29, 1929  CRASH!

The Market Crashes  NOTE: A stock ’ s value SHOULD be based on the company ’ s earnings and assets.  BUT: Demand and speculation can make a stock price go up even more. Think of auctions

The Market Crashes  Leads to OVERVALUED stocks.  Then, if you borrowed money to get the stock …  CRASH

Example:  The value of the swan beanie baby is $5.  BUT you ’ ve seen these go on eBay for $150.  The price is $150 for the beanie baby swan. Others go for even higher.  You borrow $150 from a bank to buy the beanie baby. 20% interest ($30) total $180.

Example  You have a $180 beanie baby.  What happens when people no longer want to pay that much?  The price goes down to $5?  YOU ARE BROKE and OWE MONEY!

October 29, 1929  THAT is what happened to ALL stocks. Investors lost money Businesses lost profits Workers were laid off Banks who had loaned money failed when people couldn ’ t pay back their loans.

October 29, 1929  Because investors were consumers – they had NO money to buy things.  Businesses couldn ’ t sell products.  Laid off workers.  Who couldn ’ t buy things then.  Businesses failed.

Black Tuesday: October 29, 1929  To stop the panic of Thursday, bankers pooled their money to buy up stocks to make things look stable for Friday and Monday

October 29, 1929  Because investors couldn ’ t pay loans back to banks..  Because businesses couldn ’ t pay back loans to banks  Because banks had also been speculating on the stock market with savers ’ money …

October 29, 1929  Banks are rumored to be failing  Bank runs to try to get money out of banks.  But THERE WAS NO MONEY!  BANKS FAIL and close.

October 29, 1929  Because Americans have no money to invest Global investments fall Unemployment happens in other countries The rest of the world can not afford US goods Europe can ’ t pay off their war debts to US businesses Closes more US factories

People asked “ How did this happen? ”  Black Thursday: Some banks and brokers began to call in loans after stocks began to fall in value. People who had bought General Electric at $400 had to sell for $283. In one day $3,000,000,000 was lost!

Black Thursday: October 23, 1929  4 – 8 million shares of stock were sold.  Reassurances from stock specialists and the President.  “ The nation ’ s business is on a sound and prosperous basis. ”

October 29, 1929: The Great Crash  It wasn ’ t enough!  Tuesday – people panicked.  16 million shares were sold.  When there is more supply than demand PRICES GO DOWN, DOWN, DOWN, DOWN

October 29, 1929: The Great Crash  Overall losses $30,000,000,000  The business cycle – a period in which the economy grows then contracts.

The Ripple Effect of the Crash  Someone who thought and lived like they had a million dollars Found out they only had $100.

Ripple Effect on the Economy  Risky loans hurt banks Banks earn their profits on the interest they earn for loaning out money. Gave out HUGE amounts of loans on very risky loans.

Ripple Effect for the economy  Consumer borrowing: Banks also make money on loans they make to consumers to buy cars, appliances, etc. Consumers lost money and / or their jobs and could not pay their debts to the bank.

Ripple Effect on the Economy  Bank Runs: People rushing to the bank to get their money out. Banks didn ’ t have enough money in the vaults to give people withdrawing. Banks had to call in loans to get some money. Consumers and businesses did not have the money

Ripple Effect on the Economy  Savings wiped out By million savings accounts had vanished.

Ripple Effect on the Economy  Cuts in Production Businesses had no money to keep producing goods. Few people had the money to buy goods.

Ripple Effect on the Economy  Rise in unemployment Businesses laid off workers.

Ripple Effect on the Economy  Further cuts in production as unemployment grew and incomes shrank, consumers spent less and less money and businesses produced still fewer goods.

Economic Contraction  An economic decline marked by falling output of goods and services. THE GREAT DEPRESSION –Lasted until 1941

The Great Depression: Impact on Workers and Farmers  August 1931 – Ford closed its Detroit factories. 75,000 unemployed in one day. Millions others unemployed.

The Great Depression: Effect on Workers and Farmers  Because large factories closed – small businesses and restaurants began to fail too. No customers No merchandise Rich people laid off staff

The Great Depression: Effect on Workers and Farmers  Farm prices that were already low, fell even more.  1929: 1 bushel of wheat was $1.18  1932: 1 bushel of wheat went for 42 cents  DISASTER FOR FARMS

The Great Depression: Underlying Causes  Unstable economy  Overspeculation Optimism was more than real value for goods.  Government policies Too late, the government in 1929 tried to stop the overspeculation. Only made it worse.

Hoovervilles  How did people “ get by ” ? Houses with extended families. Drifted as hobos, migrant workers Shantytowns “ Hoovervilles ”

Hoovervilles

Depression ’ s Effect on Health  “ No one has starved. ” President Hoover

Effect on Health  But some did.  Thousands went hungry.  Poor, hungry and without shelter – more prone to illness. Particularly children.

Impact on Health  In the country, people grew food. Used for food and to barter for other goods.  In the cities, sold apples and pencils.  Begged for money and food.  Fought over restaurant garbage.

Stress on Families  Men felt like failures for not providing for families.  Women were often fired for “ taking ” jobs from men. Particularly if married  Women took low-paying jobs as domestics.

Discrimination Increases  Times created hostilities against minorities. Whites were willing to take the low wages of Asian-Americans, Hispanics and African- Americans. Mass deportation of Mexican-Americans – even though they were born in the USA!

Discrimination Increases  The Scottsboro Boys Nine African-American boys riding the rails were accused of raping two white women in Scottsboro, Alabama in Eight were sentenced to die. YEARS before their convictions were overturned.

President Hoover ’ s Response?  Said if Americans had “ confidence ” things would get better.  Blamed other countries not the American economy.  Tried to tell people the factories would quickly reopen.

President Hoover ’ s Response  Voluntary Action Let volunteer organizations like church charities and local governments help people. It wasn ’ t Washington ’ s job to support and help people.

President Hoover  After 1931, he did try SOME federal programs to help people – but it wasn ’ t enough. Hoover thought government aid would cause people to lose their self-respect.

Veterans March on Washington  20,000 WWI vets and their families came to Washington to try to claim “ bonuses ” the federal government had promised to pay in They needed the money in 1932!

Bonus Army  Most were peaceful.  Hoover called in the army to drive the marchers ’ out of Washington DC. General Douglas MacArthur used force. Many were injured by gunfire, tear gas, fire.

Election of 1932  Republican: Herbert Hoover  Democrat: Franklin D. Roosevelt  Who do you think won???

Election of 1932  Electoral Map