Crash and DepressionCrash and Depression

Chapter 151929 - 1933

Setting the SceneSetting the Scene October 29, 1929

CRASH!

The Market CrashesThe Market Crashes NOTE: A stock’s value

SHOULD be based on the company’s earnings and assets.

BUT: Demand and speculation can make a stock price go up even more.

Think of auctions

The Market CrashesThe Market Crashes Leads to OVERVALUED

stocks. Then, if you borrowed

money to get the stock …

CRASH

Example:Example: The value of the swan beanie

baby is $5. BUT you’ve seen these go on

eBay for $150. The price is $150 for the

beanie baby swan. Others go for even higher.

You borrow $150 from a bank to buy the beanie baby.

20% interest ($30) total $180.

ExampleExample You have a $180 beanie

baby. What happens when

people no longer want to pay that much?

The price goes down to $5?

YOU ARE BROKE and OWE MONEY!

October 29, 1929October 29, 1929 THAT is what happened

to ALL stocks.Investors lost moneyBusinesses lost profitsWorkers were laid offBanks who had loaned money failed when people couldn’t pay back their loans.

October 29, 1929October 29, 1929 Because investors were

consumers – they had NO money to buy things.

Businesses couldn’t sell products.

Laid off workers. Who couldn’t buy things

then. Businesses failed.

Black Tuesday: October 29, 1929Black Tuesday: October 29, 1929 To stop the panic of

Thursday, bankers pooled their money to buy up stocks to make things look stable for Friday and Monday

October 29, 1929October 29, 1929 Because investors

couldn’t pay loans back to banks ..

Because businesses couldn’t pay back loans to banks

Because banks had also been speculating on the stock market with savers’ money …

October 29, 1929October 29, 1929 Banks are rumored to be

failing Bank runs to try to get

money out of banks. But THERE WAS NO

MONEY! BANKS FAIL and close.

October 29, 1929October 29, 1929 Because Americans have no

money to investGlobal investments fallUnemployment happens in other countriesThe rest of the world can not afford US goodsEurope can’t pay off their war debts to US businessesCloses more US factories

People asked “How did this happen?”People asked “How did this happen?” Black Thursday:

Some banks and brokers began to call in loans after stocks began to fall in value.People who had bought General Electric at $400 had to sell for $283.In one day $3,000,000,000 was lost!

Black Thursday: October 23, 1929Black Thursday: October 23, 1929 4 – 8 million shares of

stock were sold. Reassurances from

stock specialists and the President.

“The nation’s business is on a sound and prosperous basis.”

October 29, 1929: The Great CrashOctober 29, 1929: The Great Crash It wasn’t enough! Tuesday – people

panicked. 16 million shares were

sold. When there is more

supply than demand PRICES GO DOWN, DOWN, DOWN, DOWN

October 29, 1929: The Great CrashOctober 29, 1929: The Great Crash Overall losses

$30,000,000,000 The business cycle – a

period in which the economy grows then contracts.

The Ripple Effect of the CrashThe Ripple Effect of the Crash Someone who thought

and lived like they had a million dollars

Found out they only had $100.

Ripple Effect on the EconomyRipple Effect on the Economy Risky loans hurt banks

Banks earn their profits on the interest they earn for loaning out money.Gave out HUGE amounts of loans on very risky loans.

Ripple Effect for the economyRipple Effect for the economy Consumer borrowing:

Banks also make money on loans they make to consumers to buy cars, appliances, etc.Consumers lost money and / or their jobs and could not pay their debts to the bank.

Ripple Effect on the EconomyRipple Effect on the Economy Bank Runs:

People rushing to the bank to get their money out.Banks didn’t have enough money in the vaults to give people withdrawing.Banks had to call in loans to get some money.Consumers and businesses did not have the money

Ripple Effect on the EconomyRipple Effect on the Economy Savings wiped out

By 1933 9 million savings accounts had vanished.

Ripple Effect on the EconomyRipple Effect on the Economy Cuts in Production

Businesses had no money to keep producing goods.Few people had the money to buy goods.

Ripple Effect on the EconomyRipple Effect on the Economy Rise in unemployment

Businesses laid off workers.

Ripple Effect on the EconomyRipple Effect on the Economy Further cuts in

production as unemployment grew and incomes shrank, consumers spent less and less money and businesses produced still fewer goods.

Economic ContractionEconomic Contraction An economic decline

marked by falling output of goods and services.

THE GREAT DEPRESSION

– Lasted until 1941

The Great Depression: Impact on Workers and Farmers

The Great Depression: Impact on Workers and Farmers August 1931 – Ford

closed its Detroit factories.

75,000 unemployed in one day.Millions others unemployed.

The Great Depression: Effect on Workers and Farmers

The Great Depression: Effect on Workers and Farmers Because large factories

closed – small businesses and restaurants began to fail too.

No customersNo merchandiseRich people laid off staff

The Great Depression: Effect on Workers and Farmers

The Great Depression: Effect on Workers and Farmers Farm prices that were

already low, fell even more.

1929: 1 bushel of wheat was $1.18

1932: 1 bushel of wheat went for 42 cents

DISASTER FOR FARMS

The Great Depression: Underlying CausesThe Great Depression: Underlying Causes Unstable economy Overspeculation

Optimism was more than real value for goods.

Government policiesToo late, the government in 1929 tried to stop the overspeculation.Only made it worse.

HoovervillesHoovervilles How did people “get by”?

Houses with extended families.Drifted as hobos, migrant workersShantytowns “Hoovervilles”

HoovervillesHoovervilles

Depression’s Effect on HealthDepression’s Effect on Health “No one has starved.”

President Hoover

Effect on HealthEffect on Health But some did. Thousands went hungry. Poor, hungry and without

shelter – more prone to illness.

Particularly children.

Impact on HealthImpact on Health In the country, people grew

food. Used for food and to barter for other goods.

In the cities, sold apples and pencils.

Begged for money and food. Fought over restaurant

garbage.

Stress on FamiliesStress on Families Men felt like failures for

not providing for families. Women were often fired

for “taking” jobs from men.

Particularly if married Women took low-paying

jobs as domestics.

Discrimination IncreasesDiscrimination Increases Times created hostilities

against minorities.Whites were willing to take the low wages of Asian-Americans, Hispanics and African-Americans.Mass deportation of Mexican-Americans – even though they were born in the USA!

Discrimination IncreasesDiscrimination Increases The Scottsboro Boys

Nine African-American boys riding the rails were accused of raping two white women in Scottsboro, Alabama in 1931.Eight were sentenced to die.YEARS before their convictions were overturned.

President Hoover’s Response?President Hoover’s Response? Said if Americans had

“confidence” things would get better.

Blamed other countries not the American economy.

Tried to tell people the factories would quickly reopen.

President Hoover’s ResponsePresident Hoover’s Response Voluntary Action

Let volunteer organizations like church charities and local governments help people.It wasn’t Washington’s job to support and help people.

President HooverPresident Hoover After 1931, he did try

SOME federal programs to help people – but it wasn’t enough.

Hoover thought government aid would cause people to lose their self-respect.

Veterans March on WashingtonVeterans March on Washington 20,000 WWI vets and

their families came to Washington to try to claim “bonuses” the federal government had promised to pay in 1945.

They needed the money in 1932!

Bonus ArmyBonus Army Most were peaceful. Hoover called in the

army to drive the marchers’ out of Washington DC.

General Douglas MacArthur used force.Many were injured by gunfire, tear gas, fire.

Election of 1932Election of 1932 Republican: Herbert

Hoover Democrat: Franklin D.

Roosevelt Who do you think

won???

Election of 1932Election of 1932 Electoral Map