4.05 The Great Depression

Losses from stock market crash
one six-day period at the end of the month of October 1929, stock prices in the sixteen largest U.S. companies dropped by $3 billion. That loss equaled the amount of the entire federal budget for the year.
By 1930, one in four Americans was unemployed. More than 4,000 banks had closed because they had run out of money. People who had saved for years to buy a home or educate their children lost their life savings. Weekly average wages fell from $25 to $17 between 1929 and 1933.

“Coolidge prosperity”
President Calvin Coolidge kept American businesses free of high taxes and government regulations. According to studies, the wealthiest 0.1 percent of Americans in 1926 had a combined wealth equal to the poorest 42 percent of Americans. For example, Henry Ford earned $14 million in 1927 when the average American earned less than $1,500 per year. But while the media and politicians claimed the economy was healthy, by 1928 most American families spent their entire incomes on basic needs such as food, clothing, and housing.

Stock market:
a place where shares of companies are bought, sold, and traded

bull market:
stock market in which prices are rising for a sustained period of time. By 1929 stock prices had risen more than four times their 1921 value. Ironically, only about five percent of all Americans bought shares. But this long bull market convinced almost everyone that the U.S. economy was booming.

Why some financial experts worried
prices exceeded the stocks’ actual value. They were concerned that U.S. industry was producing more goods than could be sold. But at the time, there were no regulations about the number of shares a company could sell. In other words, business owners could sell more shares than their companies were worth.
Also, banks had invested too much money with stock brokers who in turn were loaning large sums to margin buyers.

buying on margin:
Borrowing money to pay for stocks with the intention of paying the loans back when the price of the stock rises. By 1929, stockbrokers had loaned more than $8 billion to investors buying on margin. By that time, companies that were eager to sell shares began to invest their profits with stockbrokers instead of expanding their businesses. So companies began to act like banks. Today, regulations prevent the margin for loans on stock purchases from exceeding a certain percentage of the total value of the stock. In the 1920s, however, stockbrokers were allowed to set their own margin rates.

taking a large risk in business with the hope of greater future gains. It would come back to haunt many investors who dreamed of great wealth. Many people borrowed almost all of the money to pay for stock, hoping for huge payoffs quickly.

Just before crash
To investors—and even to expert economists—a rising stock market meant a good economy. The government raised interest rates to try to slow borrowing money to buy stocks. It didn’t help, people still borrowed. By September 1929, about 40 percent of stocks had values based solely on “expert” opinion.

bear market:
stock market in which prices are falling for a sustained period of time

Stock Market Crash
In October, 1929, the stock market began to fall. brokers issued margin calls. This meant that investors who had bought on margin had to repay all of the money- they began selling their stocks. On Thursday, October 24, 1929, investors panicked. They began selling off everything in order to get their money back. Large companies and banks were the main purchasers, as many tried to keep the panic from spreading. When the market opened the following Monday, the sell-off continued. The stock market value closed that day 12.8 percent lower. Black Monday was followed the next day by Black Tuesday, October 29, 1929. On this day, the market lost an additional 12 percent. The stock market had crashed.

Black Tuesday:
refers to October 29, 1929, which is the day the stock market crashed, leading to the Great Depression

Hoover tried to calm Americans by using the word “depression” to describe the event in a way that sounded like a small indent in the economy that would rebound.

Gross National Product (GNP):
the annual value of all goods and services produced in a country

Many Americans rushed to the banks to withdraw their money. When too many depositors withdraw their money from a bank, the bank can run out of funds. Across the nation, hundreds of banks were forced to close their doors. By 1933, billions of dollars of Americans’ savings had been lost to bank failures. In addition, one-fifth of the nation’s banks had failed.

Great Depression:
the worst economic downturn in American history that began after the stock market crash of 1929 and lasted until around 1939

How did the government react to the Great Depression
The Federal Reserve raised intrest raters again in 1931 to try to protect the dollar in the international market. The result was that individuals and companies no longer made investments. Consumer spending and the GNP went way down.

How did President Hoover reract to the Stock Market Crash?
Hoover hoped to do nothing, he believed in little regulation, and in a rugged individualist attitude, where cirizens should pull themselves out of trouble themselves. Hoover signed the Smoot-Hawley Tariff. It spread the depression around the world. This tariff, along with the stock market crash may have created the Great Depression. Hoover then created the RFC Hoover opposed direct financial relief to the people. Many Americans thought he was insensitive to their needs and that his efforts were too little, too late, in a time of crisis.

Smoot-Hawley Tariff:
Againt the protests of 1,208 leading American economists, this act was signed by President Herbert Hoover in 1930 that placed a high tariff on goods imported to the United States in an effort to support American businesses. Instead, It spread the depression around the world. This tariff, along with the stock market crash may have created the Great Depression. It is one of the largest tariff increases in history. International trade decreased to 66% of the 1929 level.

Reconstruction Finance Corporation, created by Hoover in 1932 to aid banks, corporations, and railroads.

Emergency Relief Act
1932 created by Congress to aid farmers and state and local public works projects.

Federal Home Loan Bank Act
1932 Congress created to help banks that financed the construction of homes.

Farmers in Great Depression
By 1933, prices for farm goods had dropped 50 percent from their values in 1929. Banks took thousands of farms because farmers could not repay their loans. In addition, the value of land had dropped below the loan value, so anything of value was also seized to help make up the difference. Many farmers were left with nothing.

Dust Bowl:
region of the Great Plains that experienced massive drought during the 1930s; poor farming practices (all grass was plowed up and wheat was planted) during the 1920s, combined with the drought, forced farmers off of their land after crops and livestock were destroyed; the area included parts of Colorado, Texas, New Mexico, Kansas, Oklahoma. 2.5 million people fled the area. They became known as the Oakies. Many headed to California. The dust bowl worstenned the Great depression. Rich farmland was reduced to mounds of sand. The majority moved to California.

bands of homeless Americans. Many were forced to crime, or to hopping trains illegally to survive. Most hobos were men.

migrant workers
families that left their homes to try to find jobs in other parts of the country. They packed up whatever belongings they could and traveled to where they might find work, food, and shelter.

shanty towns made up of newly homeless people.

Relief agencies
offered soup and bread to block long lines of homeless people.

2/3 of American children suffered from this.

Americans flocked to for relief.

Bonus Expeditionary Force
May 1932 when a group of around 15,000 World War I army veterans set up camp in Washington, D.C. The veterans demanded their bonus payments, which they had been promised as a result of service during the war. They were not supposed to be paid the bonus until 1945, but many were homeless and unemployed. They needed the money now. Congress refused to grant their request, and most of the Bonus Expeditionary Force, as they had come to be known, left. Several thousand stayed, however, and protests broke out. The Washington, D.C., police feared rioting and asked for federal assistance. In July, the government ordered the Bonus Army to leave. Federal troops were sent to clear the area, using tanks and tear gas. Violence broke out, and the camps went up in flames. Hundreds of Bonus Army members were injured, and one veteran was killed. Several regular army troops were injured as well. The protesters then went home. Americans were horrified that the U.S. government had used American troops against war veterans. The incident gave them an even greater reason to dislike President Hoover and disagree with his policies. During the 1932 presidential election, many showed their dissatisfaction by electing Democrat Franklin D. Roosevelt as the next president of the United States.

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Election of 1928 Alfred E. Smith (D) vs. Herbert Hoover (R), Smith was a Catholic, Republicans took credit for prosperity of 1920s => Republican victory in all but the south Stock Market Crash 1929; didn’t cause the Great Depression WE …

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