The Great Depression• Please pick up Focus 27 and take the first 20 minutes of class time to

complete the graphs and answer the questions.

• Work on your own for the first 15 minutes and then compare graphs/answers with your table partners for the last five.

• You will receive your New Deal summary topic (due at the start of our next class on April 2) while you work. If you finish early, go ahead and look up your topic in the textbook.

We will:

*graph and analyze economic trends in the 1920s/1930s

*identify causes of the Great Depression and assess its impact on American society

The Great Depression & the New Deal

Facing America’s Crisis of Capitalism, 1929-1939

Economic Trends of the 1920s • Production expanded rapidly as manufacturers sought to

meet increased demand for products – automobiles (Ford), radios (RCA Victor), and appliances (GE); mass production methods (such as Ford’s assembly line) made products cheaper for the middle/working classes

• Consumption rose as retailers/banks made it possible for consumers to buy on credit (the “installment plan”); consumer loans and advertising also encouraged consumers to take on more debt

• Investment opportunities increased to meet the demand for production capital; “margin buying” (10% down on the purchase of stocks; 90% covered by a broker loan) fueled the Great Bull Market on Wall Street; led to overspeculation in stocks

Dangerous Consequences• Overproduction resulted in rising inventories as early as

1928, which drove prices for goods down and made it harder for producers (including farmers) to make a profit; farmers were already experiencing the problem of deflation in the agricultural market, which made it harder to make a profit without going deeper into debt

• Overconsumption created a debt bubble as Americans borrowed more and more to have the “good life” today

• Overspeculation drove stock prices well beyond sustainable levels, raising the question of when the market would “correct” itself

• The Federal Reserve and the Coolidge Administration (i.e.,Secretary of the Treasury Mellon) encouraged rapid growth by keeping interest rates and taxes low

The Great Crash of 1929By the fall of 1928, the Federal Reserve raised

interest rates because of fears that the economy was overheating

By the fall of 1929, some economists were predicting a major stock market “correction”

Black Thursday (October 24) – stock market experienced its greatest single-day decline yet, generated margin calls

Black Tuesday (October 29) – the market took a second plunge – total losses in just two weeks amounted to $32 billion (one third of America’s GNP)

Investors lost out due to the collapse of stock prices and stock brokers could not cover bank loans (see #1 on your chart)

Crash Leads to Deflationary Spiral• Loss of investment capital and

overproduction forced industry to contract production by cutting costs (laying off workers and reducing quality of goods), prices dropped (deflation) (#2)

• Layoffs and business failures led to skyrocketing unemployment (25% by 1933)

• With less money available to spend, consumer confidence eroded, which only further drove down prices and forced industry to cut costs even more (#3)

• The result was a deflationary spiral, which left many businesses with no choice but to close their doors – if you can’t make a profit, why bother? Where does it all end?

Banks and Farmers Go Under Bank failures resulted because depositors

made “runs” on the banks to withdraw their money; consumers also defaulted on their loans

The stress of these two factors on bank reserves forced bank closures; **5,000 banks closed between 1929-1932**

IMPACT: People lost their life savings and capital flow was reduced (#4)

American farmers were already deeply in debt by the late 1920s and failed to keep up when commodity prices declined along with demand

Banks demanded repayment of loans and foreclosed on farms if payments could not be made (#5)

The Depression

Cycle

Factories making Too Much, Farms growing too much

Factories Fire Workers (Don’t need them)

Farm Prices fall (Farmers can’t make $$)

Farmers & Factory Workers can’t pay back loans to

Banks: DEFAULT!!

Banks Close because they have no money: Loans have not been paid back, can’t give people their savings

BANKS Have NO $$

PEOPLE LOST SAVINGS & JOBS

NO ONE TO HELP!

=+People default on loans

Banks have no money to give people

Banks Close

People lose savings

The Great Depression Goes Global• In the 1920s, the United States became the world’s

leading creditor nation for the first time• European nations rebuilding from the devastation of

World War I relied on generous loans from American banks for reconstruction and (in the case of Germany) to cover reparations payments

• As credit tightened in 1929-30, the effects of the economic contraction spread overseas (#6)

• Congress sought to protect American producers from foreign competition and passed the Smoot-Hawley Tariff Act (1930), which drove tariffs up to their highest levels in U.S. history and provoked a trade war with European nations (#7)

• IMPACT – the international trade system imploded and the crisis deepened in European nations

Before we leave…

• Keep Focus 27 in your notebook – you will turn it in with the binder check on April 25

• Remember to research and write your summary on your assigned New Deal program for the start of our next class on Wednesday, April 2.

The New Deal• Please take out Class Notes #25, the macroeconomic chart, and

your New Deal Program Summary

• We will start with a review of the video questions from the end of class last Friday. Please take a couple of minutes to review the questions (at the end of Part II of the class notes) and write out your answers.

We will:

*assess the impact of the Great Depression on American society

*identify New Deal programs and evaluate how they sought to improve the U.S. economy

Hoover’s Failed ApproachPresident Herbert Hoover (1929-33) hoped for a

natural recovery from the depression, as had happened with previous crises:*encouraged private support to meet the needs of the unemployed and poor

*aimed to keep the federal budget balancedAs the crisis deepened, Hoover and Congress did

take action to try to encourage recovery:*increased public works spending to create

jobs (ex: Boulder Dam)*direct relief programs to help the neediest*Reconstruction Finance Corporation (RFC)

(created 1932) offered loans to banks and corporations (“millionaire’s dole”) to help keep them afloat (same principle as TARP in 2008)

IMPACT – Hoover gets some credit but it was too little, too late to help him or the country

FDR’s “New Deal”Franklin D. Roosevelt, progressive governor

of New York and TR’s cousin, won the

1932 election in a landslide

He promised the nation that there was “nothing to fear but fear itself” in his inauguration speech of March 4, 1933

His philosophy relied on experimentation to address the needs of the country in an effort to save capitalism by injecting a dose of “welfare state” socialism; he was advised by a “brain trust” of progressive reformers

Based on the views of British economist John Maynard Keynes, who argued that government spending could revitalize the economy if private investment and consumption were down: C+I+G = Y(GNP)

This approach justified massive deficit spending and borrowing to provide for relief, recovery, and reform (the 3 R’s)

Relief for the American Public• FDR’s first “100 Days” produced a wave of

legislation that transformed the role of government in the economy

• Relief programs focused on meeting the basic needs of destitute Americans and putting them back to work

• Civilian Conservation Corps (1933)• Federal Emergency Relief Act (1933)• Tennessee Valley Authority (1933)• Public Works Administration (1933)• Civil Works Administration (1933)• Works Progress Administration (1935)• Social Security Act (1935)• National Housing Act (1937)

Recovery for Industries and Farmers• Recovery programs aimed at restoring

producer confidence by raising prices of goods

Industry was helped by:

-- National Industrial Recovery Act (1933)

-- major labor reforms, including:

Wagner Act (1935)

Fair Labor Standards Act (1938)

Agriculture was helped by:

-- Agricultural Adjustment Act (1933)

-- Rural Electrification Administration (1935)

The Supreme Court challenged NIRA and AAA as an overextension of federal regulatory powers and therefore unconstitutional (1935)

Reform for Financial SectorsFDR undertook reform measures to fix

America’s broken financial system in an effort to restore investor confidence

The most immediate crisis facing FDR in March 1933 was the near-collapse of the U.S. banking system – required immediate action through the Emergency Banking Act and the follow-up creation of the FDIC (1933)

FDR used the first of his fireside chats (March 12, 1933) to explain the USG’s actions in declaring the “bank holiday”

The Securities and Exchange Commission (1933) aimed to regulate the free-wheeling stock market

Civilian Conservation Corps

Federal Emergency Relief Act

Tennessee Valley Authority

Civil Works Administration

National Housing Act

Works Progress Administration

National Youth Administration

Social Security Administration

National Recovery Administration

Wagner Act (NLRA) & National Labor Relations Board

Fair Labor Standards Act

Agricultural Adjustment Administration

Federal Deposit Insurance Corporation

Securities & Exchange Commission

What happened here?http://10.120.2.41/SAFARI/montage/play.php?frompage=play&keyindex=104492&location=005849&chapterskeyindex=308669&sceneclipskeyindex=-1

The Dust BowlDespite FDR’s efforts to help farmers, one region

of the country suffered heavily from a “man-made” disaster which reached it speak in 1934-35

The Great Plains states suffered intense droughts in the early 1930s

Farmers had plowed up the prairie sod in the previous decades to plant crops, leaving only a thin layer of top soil that now had little to hold it in place

IMPACT – storm fronts picked up the loose soil and produced huge dust storms; farmers fled the region for better opportunities out west in California – inspired John Steinbeck’s The Grapes of Wrath

A.

Before we leave…

• Make sure to turn in your New Deal program summary to the box. Please staple the rubric to the front.

• Remember that Capstone topic proposals are due on Friday. Review the guidelines for further information.