America’s Great Depressionmrgoethals.weebly.com/.../16542680/42_-_great_depression.pdfThe Great Depression was a worldwide event that was interconnected to America’s economic problems

America’s Great Depression

The Great Depression is one of the most misunderstood

events in American history…

Some point to the Crash of the Stock Market as the cause of the Depression…

Not True

Some like to blame America’s dependency on the Gold Standard as the cause of the Depression…

Not Accurate

Some blame Herbert Hoover, claiming his “hands-off” economic policies dragged America into the Depression…

Not By Itself


The Great Depression was a worldwide event that was interconnected to America’s

economic problems

Caused by a variety of Events

• War Debt from the Great War (1914-1918)

• Overproduction of Crops and Manufactured Goods

• American Optimism and Consumer Over-Confidence

• Dependency on the Gold Standard

• Poor Banking, Money Lending, and Investing

• Bad Political Decisions


How did War Debt impact America?

• United States = $21 Billion plus another $5 Billion in loans to Europe

• Great Britain = $40 Billion of which $800 Million was owed to the U.S.

• France = $30 Billion of which at least $450 Million was owed to the U.S.

• Russia = $27 Billion of debt plus about $1.8 Billion owed to the U.S.

• Italy = $12 Billion of debt plus about $280 Million owed to the U.S.


America’s ability to recoup these debts had an obvious impact on the nation’s overall economic stability

Increased Food Production during World War I was an economic “boom” for

many farmers in the U.S., Canada, and Australia, who borrowed money to enlarge and modernize

their farms.

How did the Overproduction impact America?

World Dependency on U.S. Industrial Goods and weapons increased during World War I, adding to

the economic “boom” for the United States.


America’s Great Depression How did the Overproduction impact America?

American Agricultural Production

New Farming Methods =

American Farms Produced =

New Competition Develops =

Worldwide Problem Occurs =

Surplus Agriculture Causes =

Farmer’s Unable to Sell Crops =

Unpaid Debts Causes =

INCREASED CROPS

MORE FOOD

FOREIGN PRODUCERS

SURPLUS PRODUCTS

DROP IN PROFITS

UNABLE TO PAY BANK LOANS

WEAKENED BANKS


American Industrial Production

American Factories Produced =

5% of US Population Control =

60% of US Families are =

U.S. Store Owners =

U.S. Factory Owners =

U.S. Factory Workers =

Unemployed U.S. Families =

1/2 OF ALL WORLD GOODS

33% OF ALL THE WEALTH

TOO POOR TO BUY GOODS

CUT BACK ORDERS OF GOODS

REDUCED PRODUCTION OF GOODS

LAID OFF WORKERS

BOUGHT FEWER GOODS

How did the Overproduction impact America?

HIGH DEMAND

for consumer goods, weapons and agricultural

products led to

OVERPRODUCTION



How did the American Optimism and Consumer Confidence impact America?


• The “roaring twenties” was an era when our country prospered tremendously.

• The average output per worker increased 32% in manufacturing and American corporate profits rose 62%.



• Uneven distribution of wealth didn’t stop the poor and middle class from wanting to possess luxury items, such as cars and radios…

• Although wages were not keeping up with the prices of those goods…”buying on credit” offer a solution!



Popular Composers and Musicians often

reflected the economic changes!



In reality:

Uneven Distribution of Wealth and Income continued to rise . . .

Because wages didn’t keep up with the nation’s rate of inflation . . . .

And the Under-consumption of American made goods here and abroad also rose.



Many did not realize how severe the downturn was

until 1932, when the economy had technically “hit bottom.”

How did the Gold Standard impact America?


• The Gold Standard was a monetary system in which all standard currency or bank notes were based on the fixed weight of gold

• Dependency on the Gold Standard limited a nation’s ability to change monetary policies or print additional currency

• In the U.S., the Federal Reserve was required by law to have enough gold to back at least 40% of all its bank notes

• In 1931, Commercial Banks converted their Federal Reserve Notes to gold, reducing the Federal Gold Reserves & reducing circulation

http://upload.wikimedia.org/wikipedia/commons/a/a5/Gold_Bars.jpg

http://upload.wikimedia.org/wikipedia/commons/0/08/500-Million-Dollar-Series-1934-Federal-Reserve-Note-Cleveland-Ohio-Coupon-Bond-D-45183601-A-Obver.jpg

http://upload.wikimedia.org/wikipedia/commons/1/17/Us-gold-certificate-1922.jpg

How did the Gold Standard impact America?


• U.S. Banks has loaned over $150 million in gold (over 240 tons) to European Banks.

• Foreign loans became questionable when most European nations went off the Gold Standard in 1931.

• These events weakened many investors confidence in the power of the U.S. dollar.

• In 1934, Congress passed the Gold Reserve Act ordering all Federal Reserve Banks to turn over their gold supplies to the U.S. Treasury.

• The act also authorized the President to devalue the gold dollar by over 40%

http://upload.wikimedia.org/wikipedia/commons/a/a5/Gold_Bars.jpg

How did Poor Banking Practices impact America?

• A solution to Overproduction was to let buyers purchase products on Credit.

• The concept of “buying now and paying later” caught on quickly in the United States and was “exported” abroad.

• This was the first time personal consumer credit was made available to the common citizen.

• By the end of the 1920’s, 60% of all cars in the U.S. were being bought on Credit.



• In the 1920s, the “Federal Reserve set very low interest rates to encouraged people and foreign nations to buy on the “installment” plan (on credit.)

• More buyers meant more profit for companies, so they produced more and more… so much that a surplus of goods was created!

• In 1929, the Federal Reserve worried that growth was too rapid, so it decided to raise the interest rates and tighten the supply of money. This was a bad miscalculation!



• Facing higher interest rates and accumulating debt, the purchases of goods began to slow down.

Buying on Credit increased PERSONAL DEBT

High Interest Rates caused LESS DEMAND for goods

The Stock Market growth in the 1920s tells a story of runaway optimism for the future.



• Booming business caused stock prices to rise.

• Stocks were being sold on margin ($10 down for $1000)

• Banks started loaning money to stock buyers

• Wall Street started using stocks as collateral

• If stocks dropped drastically, banks would lose money

• Sudden loss in confidence caused customers to rush the banks in order to withdraw their savings

• Banks no longer had enough cash to pay customers

• Eventually, over 9,000 Banks failed (90 per month)



In early 1930, there were 60 bank failures per month.

Eventually, 4,000 banks closed their

doors between 1930 and 1933.


Buying on Margin was a risky market practice.

Bank loans for stock purchases

was an unsound practice.

The Stock Market Crash of 1929 was only a symptom-not the cause of the Great Depression.

The Stock Market Crash of 1929 was not a one day event, but a slowly building economic disaster


America’s Great Depression How did Poor Banking Practices impact America?

“Black Tuesday” Oct. 29, 1929, the Stock Market crashed.

Over 16 million shares were sold in

massive selling frenzy with Losses exceeded

$26 billion.

http://upload.wikimedia.org/wikipedia/en/3/38/Stocks29.jpg


As banks closed their doors and more people lost their savings, fear

gripped depositors across the nation.

Business also lost its money and could not finance its activities…

More businesses went bankrupt and closed their doors, leaving more people unemployed…


Unemployment, 1929-1942


Men lined up a Soup Kitchens in Cities across the county, 1930’s

How did Bad Political Decisions impact the America?

• The Dawes Plan: An Attempt to help Germany pay reparations after the Great War

$800 Million in loans from the U.S. would be granted to help bolster Germany’s economy

Reparations would be paid gradually starting at 1 Million Marks the first year, increasing by 2 ½ Million annually after the first five years.

The Allies would help reorganize the German Reichsbank (National Bank)

Sources for reparations money would include transportation, customs, and excise taxes


How did Bad Political Decisions impact America?

• The Smoot-Hawley Act: U.S. Tariffs established to control foreign trade

Greatest Mistake of the Hoover Administration

Raised tariffs on foreign goods up to 50%

European partners retaliated with like tariffs

Everyone forgot the principal of successful International Trade: It’s a Two Way Street

International Trade declined 33% with devastating effects on all nations involved


America’s Great Depression How did Bad Political Decisions impact America?

For example, American farmers lost 1/3 of their market. Farm prices plummeted and thousands of farmers went bankrupt.

Many farmers lost their land and homes due to Bank Foreclosures


Smoot Hawley Tariff of 1930 and Trade Reform Act of 1934

0

1

2

3

4

5

6

7

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940

Billio

ns o

f N

om

inal D

ollars

Exports

Imports

Impacting International Trade, Unemployment, and America’s

National Debt

America’s Great Depression How did Nature compound the problems in America?

To compound the effects of the economic slump, farmers would experience one of the worst, longest droughts in history during the 1930s…

...creating a “Dust Bowl” of unproductive,

eroded farmland.

America’s Great Depression How did Nature compound the problems in America? Dust storm, Elkhart,

Kansas, 1937

America’s Great Depression How did Nature compound the problems in America? Many farm families migrated

west in search of work as migrant farmers

“Okies” & “Arkies”


Many Americans blamed President Herbert Hoover for their plight.

“The sole function of the

government is to bring

about a condition of

affairs favorable to the

beneficial development of

private enterprise.”

Herbert Hoover (1930)

Hoover did take action to intervene in the economy, but it was too little too late-


However, Hoover actually believed in a “hands-off” free market philosophy.

Within a month of the crash, Hoover met with key business leaders to urge them to keep wages high, even though prices and profits were falling.

In June 1929, Hoover signed the Farm Relief Act.


Hoover’s greatest Public Works Project, Boulder Dam, only managed to employ a few thousand.


However, Hoover was still blamed for the remaining thousands of unemployed and homeless.

Hoovervilles and Shantytowns


Ultimately, the poor handling of the Great Depression had a marked impact on American political attitudes.

Roosevelt Campaigning for Office in Kansas 1932


WWI Veterans even demanded payment of promised

benefits due to the economic crisis.

Bonus Army


A Major Electoral Shift

between 1928 and 1932

Great

Crash Investor

s Businesses

and Workers Investors lose

millions.

Businesses lose

profits.

Consumer spending drops.

Workers are laid off.

Businesses cut

investment and

production Some fail.

Banks

Businesses and workers

cannot repay bank loans.

Savings accounts

are wiped out.

Bank runs occur

.

Banks run out of money

and fail.

World Payments

Overall U.S.

production plummets.

U.S. investors

have little or no money to invest.

U.S. investment

s in Germany decline.

German war payments to Allies fall

off.

Europeans cannot afford

American goods.

Allies cannot pay debts to United States.

Effects of the Crash


America’s Great Depression The Legacy

Documents

America’s Great Depressionmrgoethals.weebly.com/.../16542680/42_-_great_depression.pdfThe Great Depression was a worldwide event that was interconnected to America’s economic problems