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Causes of the Great Depression

Causes of the Great Depression. The 1920s were a decade of consumer spending & the economy looked healthy on the surface: Income did increase in the 1920s, but there were some severe problems with the U.S. economy

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Causes of the Great Depression

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  1. Causes of the Great Depression • The 1920s were a decade of consumerspending&theeconomy looked healthy on the surface: • Incomedidincreaseinthe1920s, but there were some severe problems with the U.S. economy • In October 1929, the “Roaring Twenties” came to an end & the Great Depression began…why?

  2. Causes of the Depression • Weak Industries: • Mass-production of consumer goods led to overproduction • People did not need as many appliances & cars bytheendofthedecade (under-consumption) • Railroads, textiles, steel, coalmining,construction were barely profitable “Traditional industries” faced new competition in the 1920: Cars, synthetic clothes, natural gas

  3. Overproduction of Consumer Goods Too much inventory…Not enough buyers

  4. “Traditional” industries suffered in the 1920s Corporate Profits for Coal and Railroad Industries, 1920-1930 Profits for Railroad Companies Profits for Coal Mining

  5. Causes of the Depression • Depressed Farming: • The end of WWI led to a decline in demand for agricultural products • Too much food led to a 40% drop in crop prices • Farmers could not pay back loans & many had their farms foreclosed • Some rural banks failed

  6. Causes of the Depression • Credit: • Many Americans used easy credit to live beyond their means • By“buyingnow&paying later,” Americans generated large debts • As a result, Americans cut back on spending by the end of the decade

  7. Americans bought goods on credit & did not have much in savings accounts

  8. Causes of the Depression • UnevenDivisionofWealth • Despite rising wages, the gap between the rich & poor grew wider in the 1920s • 70% of Americans were considered “poor” • Most of the spending in the 1920s was done by 30% of the population

  9. Distribution of Wealth in the 1920s * An income of $2,500 per year was considered the minimum amount needed for a decent standard of living

  10. Causes of the Depression • The Stock Market: • In the 1920s, the stock market soared & people speculated with stocks • Many people borrowed money to pay for stocks, called buying on margin • There was no regulation of the market & some companies altered stock values to raise profits

  11. Buying Stocks on Margin

  12. Causes of the Depression The stock market crash in October 1929 marked the beginning of the “Great Depression” • The Stock Market: • On October 29, 1929 (Black Tuesday) the stock market crashed • People rushed to sell, prices plummeted, & investors lost $30 billion • Speculators who bought on the margin, could not pay off their debts • Many lost their savings

  13. The U.S. stock market had only about 3 million active buyers & sellers but the spillover into the greater economy led to the Great Depression

  14. Causes of the Depression • Bank Failures: • After the crash,peopletried to withdraw their money from banks • In1929,600banksfailed duetolackoffunds&the inability to recoup loans • The failure of the banks left many Americans without their life savings

  15. Bank & Business Failures, 1928-1933

  16. Causes of the Depression • Foreign Trade: • Post-wardebtsinEurope & high protective tariffs in America limited international trade • The Great Depression led to a global depression in Europe, Asia, & Latin America • World trade fell by 40%

  17. A Global Depression

  18. Causes of the Depression • Consumer Confidence: • Millions of Americans lost their jobs or took pay cuts to keep jobs • The lack of confidence in the future kept people from spending money • The lack of spending made the depressiondrag onuntil the 1940s

  19. Unemployment & Consumer Spending, 1928-1933

  20. Effects of the Great Depression • The Great Depression led to a collapseoftheU.S.financialsystem • 25,000 banks & 90,000 businesses failed by 1933 • Unemployment peaked at 25% • Many Americans lost their homes • America had record poverty & suicide rates; Fathers abandoned families; Healthcare declined • Private charities created soup kitchens & breadlines to help

  21. Soup Kitchens & Breadlines Rudy Vallee “Brother Can You Spare a Dime?” Some plays for next 4 slides

  22. Mortgage Foreclosures

  23. The Dust Bowl • The effects of the depression were made worse by the Dust Bowl: • Heavy droughts & over-farming in the West destroyed the Plains • In the early 1930s, windstorms swept away loose soil • Farmers in the Plains left their farms & searched for work or better land in West coast states

  24. The Dust Bowl (1931-1939) worsened the effects of the Depression Areas Affected by the Dust Bowl drought “Okies” & “Arkies”

  25. President Hoover’s Response • President Herbert Hoover initially rejected bold gov’t action in response to the depression: • He tried to reassure Americans that prosperity would return • He called for volunteerism & “rugged individualism”—Americans need to work together to end the depression

  26. President Hoover’s Response • As the depression worsened, Hoover called for more gov’t action • The gov’t issued relief checks to help the unemployed • The Reconstruction Finance Corps (RFC) loaned money to failing businesses • BuildingprojectslikeHooverDam • These efforts did not end the depression & many citizens lost faith in President Hoover

  27. Employment Agencies & Relief-Check Lines

  28. Americans who lost their homes, lived in shantytowns nicknamed “Hoovervilles”

  29. Conclusions • The Depression of the 1930s came as a shock to Americans: • When the stock market crashed in 1929, businesses closed & millions were unemployed • Americans lost faith in Hoover & began looking for new leadership & a more active gov’t to solve their problems

  30. Hoover & the Depression • From 1929 to 1932, President Hoover was criticized for not doing more to end the depression • Unemployment reached 25% • U.S. banking collapsed • Hoover offered gov’t intervention (relief check, job programs) but it was seen as too little, too late • By the election of 1932, Americans wanted hope & strong leadership

  31. Unemployment in America, 1929-1942

  32. FDR & the New Deal • In 1932, Democrat Franklin Roosevelt (FDR) defeated Hoover

  33. “Let me assert my firm belief thatthe only thing we have to fear is fear itself; nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.” FDR’s inaugural address in 1933 inspired hope

  34. FDR & the New Deal • FDR initiated his New Deal, a series of laws that were designed to fight the depression by offering: • Relief: gov’t relief checks & jobs to get people back to work • Recovery: tried to end the depression by stimulating industry & farming • Reform: long-term solutions to America’s economic problems

  35. The Hundred Days • In his 1st 100 days in office, FDR &Congress passed 15 major laws • FDR’s 1st action was to address the bank crisis; By 1933, people had no faith in banks • FDR declared a 4-day bank holiday after which banks were allowed to re-open only after gaining a gov’t endorsement

  36. Banks recovered & Americans slowly regained confidence in banks

  37. FDR’s Fireside Chats Listen to the first few minutes of FDR’s 1st fireside chat in March 1933 in which he explains his bank holiday • FDR used the radio to sell his New Deal programs to the American people • These “fireside chats” used simple , clear language to explain his New Deal programs & gain publicsupport for these goals

  38. New Deal: Relief • The greatest success of the New Deal was its ability to offer relief to unemployed citizens: • The gov’t provided relief checks to 15% of Americans • The gov’t created jobs for Americans

  39. Percentage of American Families Accepting Government Relief in 1933

  40. New Deal: Relief • Civilian Conservation Corps (CCC) was a work program for young men aged 18-25: • The CCC built roads, soil erosion projects, & parks • The CCC employed 3 million young men

  41. CCC workers paved roads, planted trees, built bridges

  42. New Deal: Reforms • The New Deal created long-term reforms to address weaknesses in the American economy • Securities & Exchange Commission (SEC) was created to regulate the stock market & prevent another stock market crash

  43. New Deal: Reforms • To help restore public confidence in banks, the Federal Deposit Insurance Corporation (FDIC) was created: • The national gov’t insures money in bank accounts (up to $250,000 as of 2006)

  44. New Deal: Reforms • The Tennessee Valley Authority (TVA) created hydroelectric power plants in the South • TVA created dams in 7 states to provide cheap hydroelectric power & create jobs

  45. New Deal: Recovery • New Deal programs tried to stimulate the economy & end the depression • Agricultural Adjustment Act (AAA) tried to help farmers by paying them not to produce • By lowering supply, the gov’t hoped to increase crop prices

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