The Crash

Terms to Remember Durable Goods: Goods designed to last a long time, typically very expensive Investment Goods: Machinery used to manufacture items Soft Goods: Goods immediately consumed with limited life span Business Cycle: Typical fluctuations in the business activity of a country

The Business Cycle Demand for durable goods falls Demand for investment goods falls Workers are laid off These unemployed workers spend less, demand for soft goods falls Demand for durable goods revives Demand for investment goods revives Workers are rehired Demand for soft goods revives

The House Built on Sand 1920s economy very precarious Half living below the poverty rate Easy credit saw high personal debt loads Stock Market levels grossly inflated Volatile situation

Warning Signs Predictors of recession ahead could be seen in 1928 Housing starts falling Business inventories high Production and wholesale prices dropped Demand for crops dropped SIGNS OF DECREASING DEMAND

Factors Leading to Depression Economic floor wiped out Inequality of income levels (Half below poverty level) Easy Credit (High personal debt) Foreign trade levels dropped (less demand) Mechanization (Factories required less employees) All four combined to send the economy into a tailspin

The Trigger The Stock Market crashed in October 1929 Lost 11% of all value on 10/24 (Black Thursday) Lost 13% on 10/28 (Black Monday) Lost 12% on 10/29 (Black Tuesday) Stock Market did not recover until 1947

Economy sent reeling Unemployment rate soared (reached a high of 25%) Consumer sales plummeted Evictions mounted

Banking Crisis Banks began to fail in the fall of 1930 Farmers defaulted on loans Rippled throughout the economy Runs on banks People hurried to remove deposits Banks failed All deposits left were lost

Mounting Discontent Millions unemployed Homelessness grew drastically Formation of “Hoovervilles” “Bonus Army” debacle

Official Reaction Limited Mellon advised to let the economy liquidate The Crash drove out the bad Would lead to limited difficulty Economy would emerge healthier “Prosperity just around the corner” By 1932, 25% unemployed Thousands left homeless Money supply contracted

President Herbert Hoover Picture of an ideal president Self-made Man Noted Engineer Devoted life to charity at 40 Profound humanitarian Highly accomplished Secretary of Commerce

Rugged Individualism Old theme in the United States All should succeed on their own Government assistance minimal “Pull oneself up by one’s own bootstraps” Fits with the ideal to limit government involvement in the market Limits any possible government response

Volunteerism Hoover was slow to act Promoted “Volunteerism” Convince people to cooperate, not coerce Keep employment levels up Refuse to seek raises Did not work Businesses had to show profit Lack of sales meant no profit

Additional Steps Promoted higher tariffs (Smoot-Hawley) Mexican repatriation Reconstruction Finance Corporation Federal Home Loan Bank Act Too little, too late Nation mired in discontent