Great depression_ICICI BLP, NIIT

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THE GREAT DEPRESSION Arpita Upadhyaya Aravindhan Gopalan Abinash Biswal Dayanidhi Kar

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GREAT DEPRESSION-1929-33

Transcript of Great depression_ICICI BLP, NIIT

Page 1: Great depression_ICICI BLP, NIIT

THE GREAT DEPRESSION

Arpita Upadhyaya

Aravindhan Gopalan

Abinash Biswal

Dayanidhi Kar

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Agenda

Causes

Impact

Overview

Reforms Implemented

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Economic Depression – What is it?

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• Severe and prolonged downturn in economic activity

• Recession that lasts two or more years.

• Characterized by substantial increases in

unemployment, drop in available credit, diminishing output, bankruptcies and sovereign debt defaults, reduced trade and commerce, sustained volatility in currency values

• Consumer confidence and investments decrease, causing the economy to shut down

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Overview – The Great Depression

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• Worldwide economic downturn that began in 1929 and lasted until about 1939

• Ranks second only to the Civil War as the gravest crisis in American history

• Longest and most severe depression ever experienced by the industrialized Western world

• Reduction in consumer spending, drastic declines in output, severe unemployment, and acute deflation, catastrophic poverty

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CAUSES OF THE GREAT DEPRESSION

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THE STOCK MARKET CRASH

• Speculation: Too many Americans were engaged in speculation – buying stocks & bonds hoping for a quick profit

• Margin: Americans were buying “on margin” – paying a small percentage of a stock’s price as a down payment and borrowing the rest

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THE STOCK MARKET CRASH • Occurred on the 24th and 29th of Oct –

called Black Thursday and Black Tuesday

• On Oct 24th, the Dow Jones industrial average hit a low of 299.5, down from a high of 381.2 from the previous month – a 21% decline

• Triggered a selling panic

• 9% drop on trading that was approx three times the normal daily volume for the first nine months of the year

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THE STOCK MARKET CRASH• 16.4 million shares were sold

that day – prices plummeted

• People who had bought on margin (credit) were stuck with huge debts

• Stocks lost nearly 90 percent of their value

• Stockholders had lost more than $40 billion dollars

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BANKING PANIC AND MONETARY CONTRACTION

• After the crash, many Americans panicked and withdrew their money from banks

• Banks had invested in the Stock Market and lost money

• People lost money as bank deposits were uninsured

• Banks hesitated in giving new loans – aggravated the depression

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BANKING PANIC AND MONETARY CONTRACTION

• In 1929- 600 banks fail

• By 1933 – 11,000 of the 25,000 banks nationwide had collapsed

• culminated with the national “bank holiday” being declared which closed all banks

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REDUCTION IN CONSUMER SPENDING

• By late 1920s, American consumers were buying less

• Rising prices, stagnant wages and overbuying on credit were to blame

• People did not have the money to buy goods factories produced

• Vicious circle of unemployment and dip in consumer spending continued

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SMOOT HAWLEY TARIFF

• American economic policy with Europe to help protect American firms

• Protectionist Trade Policies-charged a high tax for imports

• Less trade between America and Foreign countries leading to economic retaliation

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THE GOLD STANDARD

• Limited US Monetary policy

• Imbalances in trade flows gave rise to international gold flows

• Interest rates hiked substantially to stem gold outflow

• High interest rates depressed spending and led to high unemployment

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IMPACT OF THE GREAT DEPRESSION

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EFFECTS ON INDUSTRY

• Corporate profits - from $10 billion to $1 billon

• Business failures: 100,000 between 1929 and 1933

• GNP – $104 billion in 1929 to $56 billion in 1933

• Total national income – fell by Over 50%

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Decline in Industrial production in various countries

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EFFECT ON WORKERS AND FAMILY• Unemployment ~25% in 1932?

– underemployment– patterns of reemployment and layoffs

• “Depression mentality”

Men Lined Up at the New York City Employment Bureau, 1932

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EFFECT ON WORKERS AND FAMILY

A. Jobless / Homeless

• 1930-1932 – Jobless goes from 4 to 12 million

• Houses are lost, people become homeless

B. Hatred for President Hoover

• Say’s it’s not Government’s job to fix the Poor

• People name Poor Places after Hoover – Hooverville

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SO, IN A NUTSHELL

Great Crash Investors

Businesses and WorkersInvestors lose

millions.

Businesses lose profits.

Consumer spending drops.

Workers are laid

off.

Businesses cut investment and

production Some fail.

Banks

Businesses and workers cannot repay bank loans.

Savings accounts are wiped

out.

Bank runs

occur.

Banks run out of

money and fail.

World Payments

Overall U.S. production plummets.

U.S. investors have little or no money to

invest.

U.S. investments in

Germany decline.

German war payments to Allies fall off.

Europeans cannot afford

American goods.

Allies cannot pay debts to

United States.

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Reforms Implemented

• A. President Roosevelt Elected (1932)– Brain Trust- Used professors and experts to

develop programs to fight the depression– Promised “New Deal” for Americans

• Fixing Banks

1. Declared a banking crisis

a. Closed ALL banks/ 4 day “Bank Holiday”

b. Emergency Banking Relief Act- Passed by allowing only sound banks to reopen.

2. Fireside Chat- told Americans by radio that the good banks were safer than $$ in mattress.

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Reforms Implemented

A NEW DEAL!!!

a. Unemployment*CCC- Civilian Conservation Corp*PWA- Public Works Administration*TVA- Tennessee Valley Authority

b. Recovery Plans*NRA- National Recovery Act*AAA- Agricultural Adjustment

Admin.

c. Prevention Reforms*FDIC- Federal Deposit Insurance

Corporation *SEC- Securities and Exchange

Commision

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Reforms Implemented

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Reforms Implemented

Results-

Did NOT end the Depression

1. Most of the Businessmen disliked New Deal

2. Gave country confidence

a. Ended banking crisis

b. Helped with some Jobs

c. Infrastructure (buildings, schools, bridges, electricity, artwork)

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Conclusion

Thank you