1. Chapter 25 Section 1 The End of Prosperity

2. The Roaring 1920s - Review New products became available to consumers New products became available to consumers –Automobile –Washing machine –radio Expensive products became affordable to buyers Expensive products became affordable to buyers –Assembly line –Installment buying Laissez faire economics Laissez faire economics –Fewer regulations on businesses Stock prices soared Stock prices soared

8. Start of the Decline –Herbert Hoover elected president in 1928 –He promised Americans the continued prosperity of the 1920s –The stock market experienced rapid growth with its rising stock values

9. Underlying Economic Problems Richest 20% of Americans held 80% of the $$$ in the country Richest 20% of Americans held 80% of the $$$ in the country Many farmers were in poverty and couldn’t sell many of their products Many farmers were in poverty and couldn’t sell many of their products Improved “efficiency” by businesses caused products to pile up in warehouses Improved “efficiency” by businesses caused products to pile up in warehouses Consumers bought many items on credit Consumers bought many items on credit Europe was already in a Depression, partly caused by the effects of WWI Europe was already in a Depression, partly caused by the effects of WWI

10. Speculation / Buying on Margin In 1920s, Stock market kept rising In 1920s, Stock market kept rising People began Speculation: Buying & selling of stocks in hope of making quick profit People began Speculation: Buying & selling of stocks in hope of making quick profit Buying on Margin: Pay a small part of the stock’s price as down payment, then borrow the rest. Then…sell the stock, repay loan, keep profit Buying on Margin: Pay a small part of the stock’s price as down payment, then borrow the rest. Then…sell the stock, repay loan, keep profit

11. Buying on Margin Scenario You want to purchase $100 worth of stock You want to purchase $100 worth of stock You only have $20 – so you borrow the rest from the bank ($80) You only have $20 – so you borrow the rest from the bank ($80) The stock goes up 40% (which happened frequently during the 1920s) The stock goes up 40% (which happened frequently during the 1920s) Your $100 turns into $140 Your $100 turns into $140 You must pay the bank back your loan (80 X.10) = 8 (plus the original 80) = 88 You must pay the bank back your loan (80 X.10) = 8 (plus the original 80) = 88 You are left with a net profit of $32 (140-88-20), with only putting in $20 of your own money You are left with a net profit of $32 (140-88-20), with only putting in $20 of your own money

12. The “Crash” of the Market –Stock prices were drifting down after a peak in the summer of ‘29 –Those who bought on margin needed sell stocks fast –October 29, 1929 : Black Tuesday – investors sold 16.4 million shares of stock Banks wanted $$ back – ran short of money and failed Banks wanted $$ back – ran short of money and failed

13. After the Crash…Chain Reaction Banks were failing (going out of business) – so not much $$ was being lent Banks were failing (going out of business) – so not much $$ was being lent People also became scared about their money, fearing the safety of putting it in banks; they didn’t purchase much anymore People also became scared about their money, fearing the safety of putting it in banks; they didn’t purchase much anymore Businesses sold less and less (many forced into bankruptcy) Businesses sold less and less (many forced into bankruptcy) Businesses forced to lay off workers Businesses forced to lay off workers People without jobs, unable to pay bills People without jobs, unable to pay bills People became afraid to put their money into Banks People became afraid to put their money into Banks The combination of all of these factors leads to a Depression The combination of all of these factors leads to a Depression

14. The Business Cycle The business cycle is a pattern in U.S. history where the economy goes up and down repeatedly The business cycle is a pattern in U.S. history where the economy goes up and down repeatedly When business produce more than they can sell then goods pile up, and businesses then cut back production and lay off workers When business produce more than they can sell then goods pile up, and businesses then cut back production and lay off workers Laid off workers (and those fearing the bad economy) buy fewer goods causing businesses to fail Laid off workers (and those fearing the bad economy) buy fewer goods causing businesses to fail This slowing of the economy (amount of products produced by the nation) is called a recession This slowing of the economy (amount of products produced by the nation) is called a recession A longer and deeper recession is called a depression A longer and deeper recession is called a depression When consumers buy up surplus goods and businesses can increase production and hire back workers the economy recovers (and people begin to buy more as they are more confident in the economy being strong) When consumers buy up surplus goods and businesses can increase production and hire back workers the economy recovers (and people begin to buy more as they are more confident in the economy being strong)

15. The Business Cycle

16. The Causes of the Great Depression 1. Overproduction of goods Farmers Farmers farmers produced too much, leaving them with surpluses farmers produced too much, leaving them with surpluses This overproduction drove their prices down (and profits) This overproduction drove their prices down (and profits) Industry Industry businesses were producing more consumer goods than people were consuming businesses were producing more consumer goods than people were consuming assembly line increased production assembly line increased production

17. The Causes of the Great Depression 4. Uneven Distribution of Wealth The wealthiest 20% of the population held 80% of the nation’s wealth The wealthiest 20% of the population held 80% of the nation’s wealth Incomes rose 75% for the wealthiest 20%, and only 9% for everyone else Incomes rose 75% for the wealthiest 20%, and only 9% for everyone else Over 60% of the population made less than $2500 (and were living below the poverty line) Over 60% of the population made less than $2500 (and were living below the poverty line) The average person didn’t have enough money to keep buying to keep the economy booming The average person didn’t have enough money to keep buying to keep the economy booming

18. The Causes of the Great Depression 2. Overvalued Stock Market Banks and customers who bought stocks on margin drove up stock prices too high Banks and customers who bought stocks on margin drove up stock prices too high 3. Individual Consumer Debt Too High Installment buying Installment buying helped people buy products they couldn’t afford Installment buying helped people buy products they couldn’t afford When they built up too much debt people stopped buying more products When they built up too much debt people stopped buying more products People outside the New York Stock Exchange in 1929

19. Hoover’s Response (to the crash) –Balanced federal budget – cut gov’t spending – raised taxes –He didn’t believe in giving direct aid to the poor –People blamed Hoover for problems (Hoover Flags, Hoovervilles) –Hoover also believed… Gov’t should facilitate cooperation, not control Gov’t should facilitate cooperation, not control “Rugged Individualism” – people should succeed through their own efforts; not depend on gov’t bailing them out “Rugged Individualism” – people should succeed through their own efforts; not depend on gov’t bailing them out

20. Hoovervilles Hoover blankets Hoover flags Hoover was Blamed for all of the Problems

21. Hoover’s Solutions Eventually – Hoover began some Public Works Projects – Gov’t funded projects to build resources such as roads/dams : Result – Creates jobs (but, it’s too little, too late) Eventually – Hoover began some Public Works Projects – Gov’t funded projects to build resources such as roads/dams : Result – Creates jobs (but, it’s too little, too late) Boulder Dam (AZ/NV) Boulder Dam (AZ/NV)

22. Hoover and the Bonus Army WWI soldiers due payment in 1940 – but they want it early WWI soldiers due payment in 1940 – but they want it early Around 15,000 soldiers march to Washington, set up camp to protest Around 15,000 soldiers march to Washington, set up camp to protest When the US Senate voted to not pay their bonuses early, most veterans left, but around 2,000 remained When the US Senate voted to not pay their bonuses early, most veterans left, but around 2,000 remained Gen. MacArthur and Army use gas & bayonets to drive them out Gen. MacArthur and Army use gas & bayonets to drive them out 1 killed, many injured, public angry, Hoover very unpopular – his fate is sealed. 1 killed, many injured, public angry, Hoover very unpopular – his fate is sealed. Leads to FDR’s landslide win in election of 1932 Leads to FDR’s landslide win in election of 1932

24. Election of 1932 President Herbert Hoover (Republican) President Herbert Hoover (Republican) –Warned the nation that govt. aid programs would weaken Americans’ spirit of self-reliance and would be too expensive –Hoover was blamed for the bad economy, his slow reaction to help people, and for the treatment of the Bonus Army

25. Election of 1932 Franklin D. Roosevelt (Democrat) Franklin D. Roosevelt (Democrat) –As Governor of New York he took active steps to provide aid to farmers and the unemployed –People believed he would try to do the same for the whole nation as President –FDR won in a landslide

26. Election of 1932