The Great Depression. Boom… May 1928-September 1929 40% average increase in value of stocks. Speculative fever Buying on margin encouraged by brokers.

The Great Depression

Boom…

May 1928-September 1929 40% average increase in value of stocks. Speculative fever Buying on margin encouraged by brokers

Only have to put %10 down

Bust…

Began fall of 1929October 29, 1929 – “Black Tuesday”

16 million shares traded (compared to 2-5 million) Many stocks became worthless

Market continued to decline in following months, then deeply depressed.

Banks Suffer

Many banks had lent money to stock speculators.

Many banks had invested depositors’ money in stock market.

When stock market crashes: Banks lose money on investments. Speculators default on loans. Banks lend less money – consumers and businesses

unable to borrow and spend.Many banks forced to close money

disappears.Bank runs

Causes of the Great Depression

Stock market crash was NOT the cause of the Great Depression!!!

The crash was merely a symptom of many underlying causes.

Causes of the Great Depression

Lack of diversification in the economy Two main industries: automobiles, construction Those two decline multiplier effect

Causes of the Great Depression

Mal-distribution of purchasing power/Weakness in consumer demand ½ Americans lived at or below

poverty level Too poor to buy the goods the

new economy was producing.

Causes of the Great Depression

Credit Structure Installment plans Farmers deeply in debt Banks unstable due to loan

situation, banks often invested in stocks.

Causes of the Great Depression

America’s position in international trade Demand for American

goods began to decline – Europe recovering from WWI – became productive

American protective tariffs made trade difficult.

Causes of the Great Depression

European economy destabilized by international debt European countries owed money to American banks

b/c of WWI Reparations were used to pay loans Germany and Austria unable to pay American banks refused to forgive loans. Loaned countries money to pay back loans.

Hoover

First attempts to bolster public confidence “The fundamental business

of this country is on a sound and prosperous basis.”

Attempted to use government spending as a tool to fight depression Too little spending Relied on state and local

governments to spend for construction.

Hoover

Farmers 1929 – Agricultural Marketing Act – voluntary

cooperation to limit production Farm Board established to buy surpluses

Hawley-Smoot Tariff Highest tariff ever! Designed to protect farmers Horrible impact on Economy!

Hoover

Hoover blamed “Hoovervilles”

Hoover

Spring 1931 – International monetary crisis US banks no longer able to make loans to European

countries.American banks get in serious financial

trouble – mortgages called in Jan. 1932 – Reconstruction Finance

Corporation Provide federal loans to troubled banks and other

businesses. Make funds available to local gov’t for relief projects. Limited effectiveness

Election of 1932

Franklin D. Roosevelt “I pledge you, I pledge myself, to a new deal for the

American people.”

The New Deal

Watershed event in US historyDid not end the Depression.Did end the disastrous downward spiral in

1933.Keynsian economicsThe 3 R’s: relief, recovery, reform

Emergency Measures

Bank Holiday 4 days in duration Worked – ¾ of banks in Federal Reserve System

reopened within 3 daysEnded Prohibition

21st Amendment

Agricultural Adjustment Act - 1933

Reduce crop production and surplusesFarmers told how much to plantGiven subsidies to NOT grow certain cropsVery controversial!Did increase farm prices and incomeStruck down by Supreme Court then replaced

by similar act.

National Industrial Recovery Act, 1933

National Recovery AdministrationVoluntary!Every business called on to accept a

minimum wage 30-40 hour workweekAbolition of child laborPricing agreementsNRA blue eagleAfter a short time, began to fall apartSchecter v. US – struck down law

Rights of laborers

Fair Labor Standards Act – 1938Minimum wage - $.40/hrMaximum 40 hour work weekLabor for under 16 prohibited

Tennessee Valley Authority

Financial Programs

Off the gold standard.Glass-Steagall Act – gov’t given authority to

curb speculation by banksFDIC established

Gov’t guarantee deposits – up to $250,0o00Truth-in-Securities Act, 1933Securities and Exchanges Commission, 1934

Relief

Federal Emergency Relief Administration Harry Hopkins

Civil Works Administration – temporary projects

Civilian Conservation Corps – young menFarm Credit Administration – farm mortgage

reliefHome Owner’s Loan Corporation – home

mortgage reliefHelped to tie middle class to Democratic

party

Election of 1936

“Referendum” on FDR and the New Deal Vs. Alfred Landon

Democrats – strong coalition Farmers Urban workers Poor Blacks Progressives Liberals

Court-Packing Plan

FDR upset with Supreme Court Narrow interpretation of Constitution over interstate

commerce Fearful of other New Deal programs being struck

down.FDR proposed expanding court (9-15)Conservatives upset!

“This is how dictators come to power!”Supreme Court fixed problem itself – began

to vote in favor of New Deal.

Congress

Congress began abandoning New Deal FDR’s power no longer as strong. No longer automatic “rubber stamp.”

Severe recession – Fall 1935 – hurt FDR Difficult to get new legislation enacted