The Great Depression & The New Deal. Chapters 9 & 10

Transcription

1 The Great Depression & The New Deal Chapters 9 & 10

2 The Great Depression-Causes Not agreed upon by all historians Combination of domestic and worldwide conditions including Stock Market Crash of 1929 Bank Failures Bank deposits were uninsured Creation of new loans stopped Reduction in Purchasing Across the Board Economic fear led to reduction of purchasing which led to less products produced Led to reduction in workforce Loss of jobs resulted in inability to pay credit Less spending led to increase in economic crisis American Economic Policy with Europe Failed businesses led Congress to pass Smoot-Hawley Tariff 1930 Charged high tax for imports leading to less trade with America and foreign countries Dust Bowl- drought in the Mississippi Valley 1930 Not direct cause, but farmers lost farms and could not pay debt

3 The Great Depression Once I built a railroad, I made it run. I made it race against time. Once I built a railroad, now it s done. Brother, can you spare a dime? In 1932, a young New York City lyricist named E.Y. Yip Harburg, together with composer Jay Gorney, penned what is considered the anthem of the Great Depression, Brother, Can You Spare a Dime? It was part of the 1932 musical Americana. The melody is based on a Russian-Jewish lullaby Jay Gorney s mother had sung to him as a child. It was considered by Republicans to be anti-capitalist propaganda, and almost dropped from the show; attempts were also made to ban the song from radio. However, the song became best known through recordings by Bing Crosby, Al Jolson and Rudy Vallee. Their versions of the song were released just before Franklin Delano Roosevelt s election held on Tuesday, November 8, The Bing Crosby recording became the best-selling record of its period, and came to be viewed as an anthem of the shattered dreams of the era. Credit:

4 Wealth and Banks Richest 1% of Americans owned over ⅓ of American assets Limited economic growth Held onto money Middle class Americans already stretched debt capacities via credit purchases of automobiles and appliances Loss money put in savings bank Banks operated without insurance Climate of panic in tough times Few regulations allowed poor lending practice Agricultural prices already struggled in 1920 s Depression spread across Atlantic Fewer trade deals

5 Stock Market Crash 1929 American economy enters ordinary recession during summer 1929 Consumer spending drops, unsold goods become a surplus Stock prices continued to rise POP - stock prices reached levels that could not be justified by future earnings Panic sweeps Wall Street Investors who bought stocks on margin wiped out

6 Margin and Margin Call So, what is a margin anyway? Investors would sometimes buy stocks on margin Stock purchased on credit For example, with $1000 down payment, a investor could buy a $10,000 stock and borrow $9,000 from a stockbroker. The stock was held as collateral. As long as stock prices rise, buying on margin was safe as it would only be a short time for the investor to be able to repay the loan and make a profit Margin Call When the broker demands the investor to repay the loan at once Problem when stock prices fall below value because investors lose money

7 The Great Depression Deepens President Hoover and other leaders assured crisis would run course 1930, 4 million Americans out of work 1931, 6 million Americans out of work Industrial production dropped by half No sales, no work, no pay Bread lines, soup kitchens, homelessness became more and more common Farmers could not afford to harvest crops were forced to leave them to rot in fields By 1933 thousands of banks closed doors due to demand of deposits from customers Hoover Administration gives banks government loans Hoped banks would loan to businesses to hire back employees

8 FDR and the New Deal 1932 Election Hoover loses popularity as Depression continues Believed that government should not directly intervene in economy and was not responsible for creation of jobs or economic relief Franklin D. Roosevelt wins overwhelmingly His optimism claimed the only thing we have to fear is fear itself. FDR takes action Four day bank holiday All banks closed so Congress could pass reform legislation and reopen banks determined to be sound Fireside chats encouraged public confidence Implemented what became known as the New Deal Created Federal Deposit Insurance Corporation Bank accounts insured (up to $300,000 today)

9 Hard Road to Recovery The New Deal: A group of government programs and policies established under President Franklin D. Roosevelt in the 1930s; the New Deal was designed to improve conditions for persons suffering in the Great Depression. We will look at more of these programs (alphabet soup agencies) on Wednesday, but note the few below: Tennessee Valley Authority (TVA)- built dams and hydroelectric projects to control flooding and provide electric power to impoverished Tennessee Valley region of the South Works Project Administration (WPA)- permanent jobs program that employed 8.5 million people form Social Security Act 1935 Economy continued to improve next 3 years with GDP growth at an average rate of 9% per year Sharp recession hit in 1937 caused by Federal Reserve decision to increase requirements for money in reserve. This caused a reverse in many of the gains in production and employment causing prolonged effects of the Great Depression through the end of the decade.

10 European Extremism Depression-era hardships fueled rise of extremist political movements in various European countries, most notably that of Hitler s Nazi regime in Germany German aggression led to war outbreak in Europe in 1939 WPA turned attention to strengthening military infrastructure of US, even during neutrality Roosevelt supports Britain and France against Germany and other Axis powers Defense manufacturing gears up, providing more private sector jobs Japan attacks Pearl Harbor in 1941 America declares war Nation s factories return to full production mode Conscription widespread, putting men to work as soldiers Reduces unemployment to pre-depression era level