SS.912.A.5.11 Great Depression

SS.912.A.5.11 Great Depression

By Richard Orton

The Causes of the Great Depression

The Stock Market Soars

The optimism that swept Hoover into office also drove stock prices to new highs. Sometimes the stock market has a long period of rising stock prices, or a bull market. A bull market lasts only as long as investors continue putting new money into it.

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The Causes of the Great Depression

The Stock Market Soars

In 1929, approximately 10 percent of American households owned stocks. In the late 1920s, buyers engaged in speculation, or betting the market would continue to climb, thus enabling them to sell stock and make money quickly.

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The Causes of the Great Depression

The Stock Market Soars

Many American investors purchased stocks on margin, making only a small cash down payment (as low as 10 percent of the price). With $1,000, an investor could buy a sum of $10,000 worth of stock. To protect a loan, a broker could issue a margin call, demanding the investor repay the loan at once.

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Multiple Choice

What did it mean to purchase stocks on "margin"?

• A.The investor would purchase only the cheapest stocks in the hopes that they would rise slowly over time.

•  B.The stockbroker would take an investor's money and invest in the stocks the broker thought were best.

•  C.The investor would pay a small down payment, and the broker would lend the money for the rest of the purchase.

•  D.The investor would purchase a stock and then sell it in the same day if it rose at all in order to turn a quick profit.

The Causes of the Great Depression

The Stock Market Crash

In September 1929, the stock market peaked. Prices then began an uneven downward slide. On Monday, October 21, 1929, stock prices dropped. On October 24, a day that came to be called Black Thursday, the market plummeted further. The following week, on October 29, a day later remembered as Black Tuesday, prices took the steepest dive yet. On Black Tuesday, more than 16 million shares of stock were sold, and the value of the industrial index (a measure of the value of leading industrial companies) dropped by 10 percent.

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The Causes of the Great Depression

Banks Begin to Close

The crash of the stock market hurt banks in two ways. First, by 1929, banks had lent billions to stock speculators. Second, many banks had invested depositors’ money in the stock market, hoping for high returns. When stock values collapsed, banks lost money on their investments, and speculators defaulted on their loans

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The Causes of the Great Depression

Banks Begin to Close

News of bank closings terrified Americans. Some depositors made runs on banks, demanding their money and causing the banks to fail. A bank run takes place when many depositors decide to withdraw their money at the same time, usually out of fear that the bank will collapse. Most banks make a profit by lending money received from depositors and collecting interest on the loans. The bank keeps only a fraction of depositors’ money in reserve

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Open Ended

DETERMINING CAUSE AND EFFECT

How was the stock market crash related to bank failures?

Multiple Choice

Banks failed in 1929 and 1930 as a result of the market crash because _______.

• A.investors defaulted on loans for stocks, and banks had also invested in the market

•  B.the government, fearing widespread panic, shut down as many banks as possible

   

• C.people began to keep their cash in their houses and refused to use a bank

   

• D.banks employed most of the brokers who had sold stock on margin

The Roots of the Great Depression

The Uneven Distribution of Income

Overproduction was a factor leading to the onset of the Great Depression. More efficient industrial machinery increased the production capacity of factories as well as farms. Rapidly growing consumer spending could not keep pace with the increased production. Farmers did not share in the prosperity of the 1920s. Many had gone into debt to buy land or equipment during World War I, when demand and prices for their products were high. When prices fell, farmers tried to produce even more to pay their debts, taxes, and living expenses. This caused agricultural prices to drop further

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The Roots of the Great Depression

The Loss of Export Sales

Many jobs might have been saved if American manufacturers had sold more goods abroad. As the bull market of the 1920s heated up, however, U.S. banks made loans to speculators rather than loans to foreign companies. Loans from U.S. banks had secured foreign markets for U.S. exports. Without these loans from U.S. banks, foreign companies purchased fewer American products.

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The Roots of the Great Depression

Mistakes by the Federal Reserve

Borrowing by investors propelled the stock market. Instead of raising interest rates to curb excessive speculation, the Federal Reserve Board kept its rates low throughout the 1920s. The Reserve Board’s failure to raise interest rates significantly helped cause the Depression in two ways. First, by keeping rates low, the Federal Reserve Board encouraged member banks to make risky loans. Second, the low interest rates led business leaders to think that the economy was still expanding.

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Multiple Choice

Which of the following was a root cause of the Great Depression?

• A.prohibiting the sale of alcohol

•  B.woman suffrage

•  C.uneven distribution of income

•  D.the end of federal control of banks

The Depression Worsens

The Dust Bowl

The Great Plains can be very dry with high winds, but prairie grasses that preserved moisture in times of low rainfall worked to hold the topsoil in place. Large-scale settlement of the region, encouraged by the Homestead Act, caused much of the Great Plains to be extensively deep-plowed. But when a severe drought hit in the early 1930s, there was nothing to anchor the soil or retain moisture. The soil turned to dust. Winds blew the arid earth aloft, blackening the sky for hundreds of miles.

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The Depression Worsens

The Dust Bowl

Dust buried crops and livestock. Humans and animals caught outdoors sometimes died of suffocation when the dust filled their lungs. During most of the 1930s, an average of 50 dust storms a year hit the Plains. Some Great Plains farmers managed to hold on to their land, but others were not as lucky.

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Multiple Choice

What caused the Dust Bowl?

• A.A massive drought that turned uncultivated land into dust that blew across hundreds of miles.

•  B.Farmers planted too much wheat and had to burn the surplus to keep prices up.

•  C.Farmers constantly cultivated the land in order to help it retain the moisture.

   

• D.A series of tornadoes across the Great Plains destroyed crops.

The Depression Worsens

The Bonus Marchers

After World War I, Congress had enacted a $1,000 bonus for each veteran, to be distributed in 1945. In 1929, Texas congressman Wright Patman introduced a bill that would authorize early payment of these bonuses. In 1932, several hundred Oregon veterans began marching to Washington, D.C., to lobby for passage of the legislation. Other veterans joined them until they numbered about 1,000. The press named the marchers the “Bonus Army.”

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The Depression Worsens

The Bonus Marchers

Once in Washington, more veterans joined them until the Bonus Army swelled to an estimated 15,000. Hoover asked the veterans to return home. Many did, but some marchers stayed on living in Hooverville camps; others squatted in vacant buildings downtown. Hoover ordered police and then the army to clear the buildings. General Douglas MacArthur sent in cavalry, infantry, and tanks to clear both buildings and camps. As a result, unarmed veterans were running away while being pursued by approximately 700 soldiers. National press coverage of the troops assaulting veterans horrified the public and harmed Hoover’s reputation.

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The Depression Worsens

The Bonus Marchers

Demands of the Bonus Marchers

Demand Results

Early payment of veteran bonus payments Legislation was proposed but the Senate voted it down. Meeting with President Hoover President Hoover

acknowledged their right to

demonstrate but refused to

meet with them.

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Open Ended

Summarize the issues behind the Bonus Army marchers’ trip to Washington, D.C. and the resulting conflict between the marchers and the soldiers and police.

The New Deal’s Legacy

Roosevelt and the new deal

The onset of the Great Depression in 1929 was a major turning point in American history. The economic crisis of the Depression led to the New Deal, which fundamentally changed the relationship between the American people, state governments, and the federal government. ​The New Deal did not end the Depression, but it did give many Americans a stronger sense of security and stability. The New Deal tended to balance competing economic interests. Throughout the hard times of the Depression, most Americans maintained a surprising degree of confidence in the American system.

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