1. The Great Depression & New Deal, 1929-1941
Unit 7: Causes of the Great Depression

2. Origins and Causes Extreme wealth inequalities Ballooning stock market
Big difference between rich and poor
Ballooning stock market
Over speculation and buying stock on credit would lead to the Stock Market Crash (Black TUESDAY 10/29/1929)
Over reliance on unprotected loans
We still had debt from WWI
Too much speculation & borrowing

3. Stock market Crash 1920's had been a period of good economic times
However on Tuesday Oct. 29th, NYC Stock market crashed, causing a depression that would last until 1940

4. How the Stock Market Worked
the public invests in companies by purchasing stocks; in return for this they expect a profit
b/c of booming 1920's economy, profit was plentiful, so banks were quick to make loans to investors
Stock Market Rap

5. Stock market
also investors only had to pay for 10% of the stock's actual value at time of purchase
this was known as BUYING ON MARGIN, and the balance was paid at a later date

6. Stock Market
this encouraged STOCK SPECULATION - people would buy and sell stocks quickly to make a quick buck
because of all this buying & selling, stock value increased
The prolonged Bull Market of the 1920's saw stock prices rocket from an average of $50 per share in climbing to a massive $350 per share in Stock prices began to rise sharply in The high point for the 1929 market was August 1929 at $350.
this quick turnover didn't aid companies
they needed long term investments so they could pay bills (stock value was like an illusion)

7. Inequality Causes a Ripple Effect
a major problem: uneven distribution of wealth
42% of the population was below poverty line
Top 1% owned most of the wealth
of the 58% above the poverty line, most fell into the middle class category
they were not wealthy; they had jobs b/c of the industrialization & consumerization of the American marketplace

8. Inequality Causes a Ripple Effect
this middle class depended on their salaries and when productivity declined they lost their jobs
and because of low savings, they had to cut back on their purchases
this decline in purchases among the middle class ruined the whole country

9. Opposed direct federal aid Instead he believed in:
President Hoover
Opposed direct federal aid
Instead he believed in:
Self-help & volunteerism
Self-help cooperatives
This means the government did not think it was their job to help the people financially

10. President Hoover’s Response
he didn't believe that the gov't should play an active role in the economy
he persuaded bankers/business to follow his policy of VOLUNTARY NON - COERCIVE COOPERATION where he gave tax breaks in return for private sector economic investment
Hoover also organized some private relief agencies for the unemployed
Believed it was the Church's job to aid those in need not the Government

11. Hoover’s Response: Reconstruction Finance Corporation
Established in 1932 by Hoover
Gave emergency loans to banks and businesses because Hoover believed cheap loans would spur business
It granted over 2 billion dollars to the local and state governments
Hoover believed the money invested would “trickle down” to average Americans
Too little, too late

12. President Hoover’s Response
he worked out a system with European powers that owed U.S. money as a result of WWI debts = HOOVER MORATORIUM
put a temporary stop to war debt & reparations payments
European countries were to purchase American goods instead to stimulate American economy

13. Good idea in theory…
in early 1931 these measures appeared successful, but then......the TARIFF WARS began
Democrats in Congress passed a high tariff (SMOOT-HAWLEY) to protect U.S. industry (hoped to stimulate purchasing of U.S. goods)
this turned out to be a fatal error...
Congress did not understand that the world had become a GLOBAL ECONOMY
in retaliation other countries passed high tariffs and no foreign markets purchased American goods, so U.S. productivity decreased again

14. Smoot-Hawley

15. Federal Reserve policy
In the 1930s, the United States was on the gold standard.
This means the U.S. government would exchange paper dollars for gold at a fixed price
Commercial banks and the Federal Reserve held a portion of their reserve as gold coin and bullion.
A decrease in gold reserves would lower the amount of money in circulation
Therefore, large withdrawals of gold from banks could reduce bank reserves so much that banks would be forced to call in their outstanding loans.

16. Federal Reserve Policy
During the 1920s the Federal Reserve cut interest rates to stimulate economic growth
In 1929 the Federal Reserve worried investors were speculating too much with borrowed money so they decided to limit the money to supply to discourage lending  THEY DID THIS BY RAISING INTEREST RATES
As a result there was too little money in circulation to help the economy after the stock market crash

17. Bank Failures
The failure of the Bank of the United States, the failure of other banks and the suspension of operations by nearly 7,000 banks created a bank panic.
If depositors lose confidence in their banks, people will rush to withdraw their money from the bank to avoid losing their funds.
When depositors remove money from the system, banks may be forced to reduce their outstanding loans; requiring full payment or foreclosure.

19. Hoovervilles

20. Seattle, 1931

21. OTD
1. One issue was Over reliance on unprotected loans--We still had debt from_______________? 2. Which group of people did the economy depend on to use their salaries to buy goods? 3. How did Hoover deal with the money owed to the US from WW1 (Hoover Moratorium)? 4. Our adding tariffs to incoming goods led to the what?