Great Depression and New Deal Causes and Effects of the Economic Crisis

How the 1920’s led to the Great Depression The government reduced corporate taxes and business regulations allowing the wealthy to keep more of their profits. Higher profits made corporate stocks rise in value.

Working class wages stayed the same as prices rose and they could not buy as much. By 1929, overproduction had caused surpluses of goods that consumers could not buy and business profits began to decline.

Too Much Credit The installment plan (making monthly payments on larger purchases) became popular during the 1920’s and encouraged consumers to buy more than they could afford causing increased debt.

Even stocks were bought by putting a small percentage of the cost down and using the stocks themselves as collateral (called buying stocks “on margin”). Banks made these stock loans so easy to get that many people invested in businesses making stock values rise above their actual value.

The Great Crash By 1929, the economy showed signs of slowing down signaling a period of recession of the business cycle. A large number of investors (most of whom had bought stocks on margin) began to panic and sell their stocks. This began a chain reaction of selling stocks that drove down the values and caused a stock market crash which caused other economic problems and began the Great Depression.

Great Depression A severe economic recession in the 1930’s that affected all the world’s industrialized nations and the countries that exported raw materials to them It caused a decrease in industry, trade, construction, mining, farming, business profits, tax revenues, and personal incomes.

As profits fell, workers began to lose their jobs and the unemployment rate reached 25% by The homeless and unemployed settled in camps of shacks called Hoovervilles and became beggars.

Farmers in Depression New machinery and improved farming techniques caused surpluses in agricultural production driving crop prices down. Farmers tried to produce even more crops by taking out large loans to buy land and equipment using their land as collateral.

Farmers were hit hard by the depression as banks (in danger of going bankrupt) began to call in their loans and foreclose on farms. The Great Plains farmers were also hit by drought and high winds that eroded the topsoil (called the Dust Bowl). Homeless farmers from OK, and TX migrated to CA to find work.

Franklin Roosevelt’s New Deal Election of 1932 – FDR defeated Herbert Hoover who was blamed for the Great Depression FDR promised a plan called the New Deal for ending the economic crisis and creating jobs

The New Deal included relief, recovery, and reform. Roosevelt hired people to work for the government in programs such as the Tennessee Valley Authority (TVA) which built dams and power plants in southern states. It built dozens of dams, prevented floods, and provided jobs for hundreds of workers.

The Second New Deal Programs FDR established after the original New Deal did not fix all the problems It included – –Wagner Act (or National Labor Relations Act) that ensured collective bargaining rights for workers and prohibited unfair business practices designed to keep workers from organizing unions; also developed a federal agency that allowed workers to testify about unfair practices and hold elections to decide whether or not to unionize

Industrial workers began to unionize creating the Congress of Industrial Organizations which merged with the AFL in 1955.

Social Security Act Important part of the Second New Deal that included three programs. –Old-age insurance for retirees aged 65 or older and their spouses (paid for by employees and employers) –Unemployment compensation (paid by an employer tax) –Aid for the disabled and for families with dependent children (paid by the federal government)

New Deal Extras Eleanor Roosevelt – FDR’s wife who was interested in humanitarian causes, social conditions, and women’s rights as she traveled the country keeping FDR informed; led to more females in government positions

Opponents of the New Deal (led by Senator Huey Long from LA who originally supported it) felt the government had grown too large and powerful, while liberals felt the government had not done enough

Judiciary Reorganization Bill of 1937 – (called the Court Packing Bill) allowed FDR to appoint an “extra” Supreme Court justice for all over 70 ½ years old; he wanted to add more supporters of his New Deal but only caused criticism for himself

World War II When WWII began in Europe in 1939, Congress passed a series of Neutrality Acts to prevent American intervention.

The fourth of these acts (recognizing the growing Nazi threat in Europe) allowed the U.S. to sell goods on a “cash and carry” plan to protect our merchant shippers from German submarine attack Countries would have to pay cash for their goods and transport them in their own vessels. Cash and... Carry