The Great Depression

Warm Up: Reading Comprehension Quiz (20 test points)

The Appearance of Prosperity

• 1920s seemed like everyone was doing good (FALSE SENSE OF SECURITY)

• GNP (Gross National Product – value of all goods and services) was RISING

• Optimism in consumers lead to reckless spending

• Corporate (business) profits boomed• Stock market was BOOMING

Distribution of Wealth• UNEVEN distribution of wealth ( Chart on Page

675)• The wealthiest ONE percent of population saw

growth of up to 60% BUT the rest of the people saw only 8% pay increases

• Certain industries were hit hard while others prospered (Coal mining and farming)

• By 1929 70% of population was BELOW poverty line

• CREDIT ran out (families maxed out available credit buying luxury goods)

Americans put the faith and live savings into STOCKS

• What are STOCKS?• STOCKS are basically a piece of a company

– For a business to make money they offer shares of the company to individual investors. Investors pay money to the company for a stock.

– A business might break their company into 50,000 pieces. The owners of the company would buy/keep at least 25,000 (1/2) of the shares to remain in charge, and then let people buy the pieces

– If the TOTAL VALUE of a company is 1 million dollars and you buy 1 % of the company (it would cost $10,000). If the company did well and was now worth 2 million your 1 % shares would be worth $20,000)

1920s people went STOCK CRAZY

• Growing number of ordinary Americans began to make stock investments

• RISKY INVESTMENTS:– Buying on a Margin: Buying stocks with

LOANS from investors (page 675)– Risky because taking a loan out to buy stocks

is only a good idea if your stocks go up

Stock market is based on speculation –October people speculated a CRASH

• Investors saw signs of trouble (manufacturing was doing poorly, rumors that big investors were going to pull out their money)

• Thursday Oct 24th, 1929: Nervous investors PULLED THEIR MONEY OUT of the market chain effect

• Friday Oct 25th: Investors tried to calm people down by buying stocks again (temporary ease)

• TUESDAY, OCT 29th, 1929: BLACK TUESDAY, Market sank and panicked invistors dumped more than 16 million shares of stock (1/2 value of whole market)

RUNNING ON THE BANKS• Stock market crash triggered a banking crisis• Banks had invested BIG TIME in the stock

market with American’s money and had giving loans to stockbrokers who let individuals BUY ON A MARGIN (loan for stocks)

• NO bank insurance (guarantee you’ll get your money back)– Americans rushed to withdraw their money from the

bank to guarantee they wouldn’t loose it– Many banks SHUT THEIR DOORS, and people lost

all their money

Effects of the Crash

• Individuals: HUGE fortunes disappeared before their eyes– “Margin Buyers” especially hard hit – brokers

demanded they pay back their loans and they were forced to sell stocks for way less than they were worth (loosing entire life savings to pay off their debt.)

Bank Failures• Runs on the bank:

Nervous people suspected their bank might be closing and ran to get their money out before it closed– This caused 100s of

banks to close– By 1933, bank failures

had wiped out billions of dollars in individual’s savings

Farm Failure• Widespread joblessness

and poverty resulted in people not being able to buy food from farms

• Farms produced more than they could sell and prices were way down (supply/demand)

• Many farmers had to FORCLOSE – Bank takes ownership of

land/house when mortgage can not be paid

Unemployment SKYROCKETS• GNP (Gross National

Product) dropped 40 percent by 1933 (not producing anything)

• Unemployment reached 25 percent (1 in 4 people could not find a job)

• Most did not want a hand-out they wanted employment

Hooverville – named after hated President Hoover (no recovery from Depression)

• Sprawling neighborhoods of shacks sprang up in public parks filled with people who were evicted from their homes

• Called these villages “Hoovervilles” after President Hoover, who many believed was the cause of the Great Depression

Dust Bowl Devastation• 1931 Great Plains region

entered a DROUGHT (dry period) for several years

• Land bare, no grass/vegetation

• Soil blown around (dust storms)

• HUGE destruction• 2.5 million people left and

went west called “Oakies”

Destruction of wind storm in Dust Bowl

President Herbert Hoover – “Rugged Individualism”

• Believed government should play LITTLE AS ROLE AS POSSIBLE in private affairs

• Too much government control was “un-American”

• Hoover believed in an “associative state” – volunteer partnership between government and business (not BOUND forever)

Efforts of Hoover to fix American Economy• Hoover Dam –

Government/business venture to build Hoover Dam to harness Colorado River

• Reconstruction Finance Corporation authorized $2 billion in direct government loans to struggling banks and insurance companies

• Federal Home Loan Bank help people get homes/not foreclose

Hoover loses America’s support• Americans wondered why

he wouldn’t give direct aid to people (But he’d help the banks with the RFC)

• Bonus Army 15,000 WW1 veterans who came to Washington to get their War Bonus

• They camped out and protested for their money until they were violently kicked out ( veterans were injured and killed)

Veterans wanted War payment early because they were starving/poor

Sign reads: “No Pay, All Stay”

Violence toward the Bonus Army made Hoover look HEARTLESS and HELPLESS