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Boom and Bust

Boom and Bust. Causes, Effects and Responses to the Great Depression. OVERVIEW. In this lesson you will examine: The social and economic context before the Great Depression The causes of the Great Depression The effects of the Great Depression Early attempts at addressing the crisis.

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Boom and Bust

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  1. Boom andBust Causes, Effects and Responses to the Great Depression

  2. OVERVIEW In this lesson you will examine: • The social and economic context before the Great Depression • The causes of the Great Depression • The effects of the Great Depression • Early attempts at addressing the crisis

  3. The Boom • America was the leading industrial power left untouched after the Great War • After switching from wartime production to industrial production, the US economy soared while Europe struggled • A new era of prosperity was fuelled by readily available credit

  4. The Roaring Twenties Increased credit allowed: • Companies to increase production; American consumer products flooded domestic and world markets • More working class Americans to buy more consumer products • The middle class more time to engage in cultural activities like jazz

  5. The First Signs Beneath the appearance of prosperity were fundamental problems: • Worker wages did not increase with the increase in production – loss of buying power • American agriculture was hit by overproduction and environmental problems – loss of productive market • American protectionism resulted in increased tariffs on foreign exports – loss of foreign markets

  6. The First Signs

  7. The First Signs

  8. “Buying on Margin” If the share price goes up, the worker can sell the stock for profit and the broker gets its loan back If the share price goes down, the worker still owes the broker Dangerous financial practices contributed to the Great Depression; in particular, people were encouraged to buy stocks “on margin” Company X STOCK PRICE PER SHARE: $11 Broker offers to lend money based on the stock’s margin or projected growth NO LOAN PAYBACK LOAN RETURNED Worker has $10 and wishes to buy 10 shares of Company X Worker’s total holdings: $110 Worker’s total holdings: $220 Worker’s total holdings: $50 SHARE DIVIDEND NO DIVIDEND PAYOUT

  9. The Crash • Confidence in the market became shaky by September 1929 because of speculation – e.g. RCA stock in Mar 1928 was around $100/share and by Sept 3, 1929, it was $500/share • On Monday, Oct 28, 1929, stockholders began to sell their shares • On “Black Tuesday”, Oct 29, 1929, share values dropped drastically by as much as 37% causing a chain reaction throughout the economy

  10. Loss of share values spread throughout the economy Workers could not pay back their loans to brokers Workers became unemployed and unable to buy products or borrow money Corporations could not continue production without income or credit Stockbrokers could not return their loans to the banks Banks were unable to loan out money because no one could return their loans

  11. The Effects of the Crash • Between 1929 to 1932, American unemployment was around 25-30% • The working and middle classes saw their assets and investments wiped out overnight • Those who owned real estate or had non-liquid assets were not as affected • Soup and bread lines grew around churches and charities for free hand-outs • The homeless built “Hoovervilles” on public property or by railroad tracks

  12. They used to tell me I was building a dreamAnd so I followed the mobWhen there was earth to plow or guns to bearI was always there, right on the job They used to tell me I was building a dreamWith peace and glory aheadWhy should I be standing in lineJust waiting for bread? Once I built a railroad, made it runMade it race against timeOnce I built a railroad, now it's doneBrother can you spare a dime? Once I built a tower to the sunBrick and rivet and limeOnce I built a tower, now it's doneBrother can you spare a dime? Once in khaki suits, gee we looked swellFull of that yankee doodle dumHalf a million boots went sloggin' through hellAnd I was the kid with a drum Say, Don't you remember they called me Al?It was Al all the timeSay, don't you remember, I'm your palBuddy can you spare a dime? Brother, Can You Spare a Dime?

  13. Early responses • The Smoot-Hawley Tariff increased the duties on foreign imports • President Hoover took minor steps to address the crisis: attempts to increase credit, tax reductions and public works – seemed ineffective • People at first did not protest, but as the crisis grew, so did discontent

  14. SUMMARY QUESTIONS • What stimulated the American economy towards its “boom”? • What effects did increased prosperity have on American culture? • What signs were present that the American economy was not stable? • What factors caused the failure of the financial system and the subsequent stock market crash? • What were the effects on American society and how did the government respond?

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