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The Crash

The Crash. Terms to Remember. Durable Goods: Soft Goods: Business Cycle: Economic Bubble: . Terms to Remember. Durable Goods: Goods designed to last a long time, typically very expensive Soft Goods: Goods immediately consumed with limited life span Business Cycle:

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The Crash

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  1. The Crash

  2. Terms to Remember • Durable Goods: • Soft Goods: • Business Cycle: • Economic Bubble:

  3. Terms to Remember • Durable Goods: • Goods designed to last a long time, typically very expensive • Soft Goods: • Goods immediately consumed with limited life span • Business Cycle: • Typical fluctuations in the business activity of a country • Economic Bubble: • Trade in products with inflated values

  4. The Business Cycle

  5. The House Built on Sand • 1920s economy very precarious • Half living below the poverty rate • Easy credit saw high personal debt loads • Stock Market levels grossly inflated • Volatile situation

  6. Herbert Hoover • Picture of an ideal president • Self-made Man • Noted Engineer • Devoted life to charity at 40 • Profound humanitarian • Highly accomplished Secretary of Commerce

  7. Rugged Individualism • Old theme in the United States • All should succeed on their own • Government assistance minimal • “Pull oneself up by one’s own bootstraps”

  8. Warning Signs • Predictors of recession ahead • Housing starts falling • Business inventories high • Production and wholesale prices dropped • Demand for crops dropped

  9. Factors Leading to Depression • Economic floor wiped out • Inequality of income levels • Easy Credit • Foreign trade levels • Mechanization • All four combined to send the economy into a tailspin

  10. The Trigger • The Stock Market crashed in October 1929 • Lost 11% of all value on 10/24 • Lost 13% on 10/28 • Lost 12% on 10/29 • Stock Market did not recover until 1947

  11. Economy sent reeling • Unemployment rate soared • Consumer sales plummeted • Evictions mounted

  12. Official Reaction Limited • Mellon advised to let the economy liquidate • The Crash drove out the bad • Would lead to limited difficulty • Economy would emerge healthier • “Prosperity just around the corner” • However prices continued to fall!

  13. Banking Crisis • Banks began to fail in the fall of 1930 • Farmers defaulted on loans • Rippled throughout the economy • Runs on banks

  14. Mounting Discontent • Millions unemployed • Homelessness grew drastically • Formation of “Hoovervilles” • “Bonus Army” debacle

  15. Volunteerism • Hoover was slow to act • Promoted “Volunteerism” • Convince people to cooperate, not coerce • Keep employment levels up • Refuse to seek raises • Did not work

  16. Additional Steps • Promoted higher tariffs (Smoot-Hawley) • Mexican repatriation • Reconstruction Finance Corporation • Federal Home Loan Bank Act • Too little, too late

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