Our Standard Today
US.45 Analyze the causes of the Great Depression,
including the following: (E, H)
· the economic cycle driven by over-extension of credit
· overproduction in agriculture and manufacturing
· laissez faire politics
· buying on margin
· excess consumerism
· rising unemployment
· the crash of the stock market
· high tariffs
The Great Depression
The Great Depression had a lasting impact
on how Americans view the economy,
themselves and their government.
Our Objective:
Students analyze the causes of the
Great Depression.
Bellwork – Great Depression
Group Work: You are reporters researching the causes of The Great
Depression. Working in teams representing different newspapers, begin
your research at page 462 in your textbook and create four (4) reporter's
research notebook entries using this table:
Event, Policy or Condition
Resulting Condition or Problem
Today's Agenda
Bellwork
Announcements
Questions
Bellwork Review
Lecture
Standard Today
US.45 Analyze the causes of the Great Depression,
including the following: (E, H)
· the economic cycle driven by over-extension of credit
· overproduction in agriculture and manufacturing
· laissez faire politics
· buying on margin
· excess consumerism
· rising unemployment
· the crash of the stock market
· high tariffs
The Great Depression
Objective:
Students analyze the causes and effects
of the Great Depression.
The Great Depression
Mother and Seven Children
The Economic Cycle driven by Over-extension of Credit
Consumer products from the 1920s
continued to be desired into the late
Twenties.
The Phonograph, Radio, Telephone,
Refrigerator and Automobile among other
things.
Excess Consumerism
The Twenties gave us:
Planter's Peanuts
Hires Root Beer
Wheaties
Kool-Aid drink mix
Kraft cheese
7-UP
Gold Medal Flour
Orange Crush
Kellogg's Corn Flakes
Coca-Cola
Oscar Mayer wieners
Dr. Pepper
Birds-Eye frozen vegetables
Welch's grape juice
Pepsi-Cola
Kellogg's Rice Krispies
Del Monte canned foods
Peter Pan peanut butter
Libby's canned tomato soup
Green Giant canned peas
Jell-O
Cream Of Wheat
Cracker Jacks
The Economic Cycle driven by Over-extension of Credit
Consumerism was booming the the late
1920s. People were purchasing items on
credit that was very easy to obtain. Banks
were willing to loan money to collect the
interest from the borrower as income to the
banks. The money being loaned is from
the banks' depositors.
1920s Income
Average of all Industries $1407/year
State and Local Government Workers $1164/year
Public School Teacher $970/year
Building Trades $1.08/hour Working week: 43.8 hours
Medical/Health Services Worker $752/year
Everyone Became Deeper in Debt
A lot of Americans had monthly bills for their
home (rent or mortgage), automobile,
appliances and utilities. This rush of easy
credit was a fairly new phenomenon for
most. Budgeting began to take on
importance. Consumers began to purchase
less because their money was tied up in
their bills.
Overproduction in Agriculture and Manufacturing
Overproduction of goods by manufacturers meant that
consumers began to spend less on goods and this
created under-consumption.
Ordinary workers and farmers had used their consumer
credit and did not have enough money to keep buying
products that were produced.
Many warehouses became full of products that couldn't
be sold. This resulted in companies losing money.
Purchasing Less Means Less is Needed
Industries (and jobs) were changing. Credit requires people
to get paid so they were able to make their payments.
Some industries began to weaken. The cotton industry
was impacted by the rise of synthetic materials.
The railroad industry was affected by the automobile.
Low food prices affected the farming industry as demand for
foodstuffs dropped after WWI and the Government
refused price supports for farmers in 1920's.
Income-Disparity
There was an uneven distribution of income. 5% of the
population received 30% of the total income.
One estimate was that the Income of the top 1% increased
about 75%; bottom 93% = only 6%.
Low wages for industrial workers and farmers.
One-half of country lived below the poverty line. These were
potential customers.
Laissez Faire Politics
The election of 1928 witnessed Herbert Hoover being
nominated by the Republicans on a platform of prosperity
and prohibition.
Alfred E. Smith was nominated by the Democrats.
Radio was used significantly for the first time in the
campaign.
Hoover decried un-American "socialism" and preached
"rugged individualism"
Religious bigotry was displayed over Smith's Catholicism:
"A vote for Al Smith is a Vote for the Pope."
Hoover Wins 1928 Election
Herbert Hoover defeated Alfred Smith 444 to 87 in
the Electoral College, 21,391,993 to 15,016,169
in the Popular Vote.
A huge Republican majority was returned to the
House of Representatives.
Hoover had organized food drives for starving
people of Belgium during WWI. His leadership of
the Food Administration during WWI earned him
the titles of "Great Engineer" and "Wonder Boy."
Hoover Believed in Limited Government
Regulation
Hoover was the prototypical businessman who decried
socialism or large-scale government intervention in the
economy.
As Secretary of Commerce, he had supported some
progressive ideas e.g. endorsing labor unions and
supporting federal regulation of new radio broadcasting
industry. For a time, he considered government-owned
radio like Britain's BBC.
Hoover claimed in 1928 that "Poverty will be banished from
the nation." and "Everybody ought to be rich."
Buying on Margin
There was a Bull market as values of stocks continued to
increase during the 1920s. Dow Jones in 1924 was at 180.
In September of 1929 it was up to 381 -- selling for 16X
earnings; Rule of thumb = 10X
Margin buying of stocks: Investors purchased stocks from
stockbrokers for as little as 5% down. When stock values
rose, investors would pay back their debt. If no payment,
stocks were held as collateral.
Margin Call: If prices of stock decreased more than 10%,
broker would sell stock for whatever price they could get.
Result: Banks and businesses that had financed broker's
loans lost a lot of money. Banks loaned money to
stockbrokers to facilitate the margin buying.
Poor Banking Practices
There was an unstable banking system due
to mismanagement and over-speculation.
Banks were granting loans for people that
were at a high risk of not being able to pay
back their loans.
1% of US banks controlled 46% of US bank
resources.
No one to Export Goods to
There was a weak international economy.
Protectionist trade policies stopped foreign
trade. The Hawley-Smoot Tariff (1930)
the created highest tariffs in U.S.
history
23 nations retaliated by imposing tariffs on
U.S. exports.
Smoot-Hawley Tariffs Act
The Smoot-Hawley Tariff Act of June 1930 raised U.S. tariffs to
historically high levels.
The original intention behind the legislation was to increase the
protection afforded domestic farmers against foreign
agricultural imports. Massive expansion in the agricultural
production sector outside of Europe during World War I led,
with the post-war recovery of European producers, to massive
agricultural overproduction during the 1920s.
This in turn led to declining farm prices during the second half of
the decade. During the 1928 election campaign, Republican
presidential candidate Herbert Hoover pledged to help the
beleaguered farmer by, among other things, raising tariff levels
on agricultural products.
You are protecting the Farmer,
Protect Me Too!
But once the tariff schedule revision process got started, it proved
impossible to stop. Calls for increased protection flooded in
from industrial sector special interest groups, and soon a bill
meant to provide relief for farmers became a means to raise
tariffs in all sectors of the economy. When the dust had settled,
Congress had agreed to tariff levels that exceeded the already
high rates established by the 1922 Fordney-McCumber Act and
represented among the most protectionist tariffs in U.S. history.
The Act was a Disaster
The Smoot-Hawley Tariff was more a consequence of the onset of
the Great Depression than an initial cause. It provoked a storm
of foreign retaliatory measures and came to stand as a symbol
of the "beggar-thy-neighbor" policies (policies designed to
improve one's own lot at the expense of that of others) of the
1930s. Such policies contributed to a drastic decline in
international trade. For example, U.S. imports from Europe
declined from a 1929 high of $1,334 million to just $390
million in 1932, while U.S. exports to Europe fell from $2,341
million in 1929 to $784 million in 1932. Overall, world trade
declined by some 66% between 1929 and 1934. More
generally, Smoot-Hawley did nothing to foster trust and
cooperation among nations in either the political or economic
realm during a perilous era in international relations.
Tariffs had unintended consequences
https://www.youtube.com/watch?v=R3zvJe3
Koyw
Banks are losing money.
The economic cycle driven by over-extension of credit
led banks to having to write off losses from customers
who could not make their payments.
Buying on Margin Explained
Video Time :-)
https://www.youtube.com/watch?v=0SGGSq
OZhps
Margin Call!!!
DEFINITION of 'Margin Call' - A broker's
demand on an investor using margin to
deposit additional money or securities so
that the margin account is brought up to the
minimum maintenance margin. Margin calls
occur when your account value depresses
to a value calculated by the broker's
particular formula.
Video Time
We fast-forward to the 40 minute mark:
https://www.youtube.com/watch?v=RN7ftyZig
Ys&list=PLvGgZ5v2o_N8dDogxreL2NbnfKHgHxqY&index=3
The Great Crash
October 29, 1929 will always be known as "Black Tuesday"
Everybody wanted to sell their stock. Within hours the
stock market crashed.
By mid-November, $25 billion in stock value had
disappeared and fortunes were wiped out almost
overnight. Dow Jones in 1932 = 41.
Traditional historical interpretation puts the Crash as the
immediate cause of the Great Depression, however, no
direct connection has ever been proven as the country did
not sink into a major depression until December of
1930.Other factors important as well.
Rising Unemployment
By 1932, 5,761 banks had failed (22% of total). Many banks
had invested in stocks before the crash.
Thousands of businesses failed, 20,000 in 1929; 30,000 in
1932
Unemployment reached 25% by 1932 (13 million people)
excluding farmers.
As high as 33% including farmers; Chicago = 50%!
Low-skilled workers most susceptible (professionals and
middle-class suffered less)
Total wages dropped from $12 billion to $7 billion from 1929
to 1932 (lower wages = less money spent in the
economy); about 41%
Remember this Scene?
Movie time....
Farmers Lose Their Farms
By 1932, 25% of farmers lost their farms. A major cause was
the large drop in food prices. People experienced loss of
self-worth and many families broke up. The marriage rate
and birth rate declined.
Families doubled up in houses and apartments and 3 million
people became hobos and lived in makeshift shacks
known as "Hoovervilles"
Malnutrition became rampant in certain areas but death by
starvation was uncommon. Perhaps malnutrition caused
people to be more susceptible to fatal disease.
The Great Depression was the longest and most devastating
in U.S. history and world history with the U.S. hit the
hardest among industrialized nations.
America Goes Broke...
The Gross National Product fell from $104 billion in 1929 to
$56.1 billion in 1933. International reparations and war
debts structure collapsed. U.S. exports dropped, further
hurting the U.S. economy.
Assessment
Assessment Questions
How did the economic trends of the 1920s help
cause the Great Depression?
What happened to industry during this time?
What happened to agriculture?
What happened to consumers?
The Great Depression
Objective:
Students analyze the causes and effects
of the Great Depression.
Standard Today
US.45 Analyze the causes of the Great Depression,
including the following: (E, H)
· the economic cycle driven by over-extension of credit
· overproduction in agriculture and manufacturing
· laissez faire politics
· buying on margin
· excess consumerism
· rising unemployment
· the crash of the stock market
· high tariffs