What is a “Snowball

Effect”

Can you give an example???

Great Depression: The period between 1929-1941 of economic hard times that followed the crash

• The stock market crash did NOT cause the Depression BUT it shook people’s confidence of the economy

• People were shocked & confused as to how the 20s prosperity vanished

Causes:

• Overproduction– Factories & farms produced vast amount of products– Wages didn’t keep up with prices = workers could NOT afford to

buy goods– Farmers had little $$ for cars & other items– Factories/ farms produced more goods than people were buying– As orders slowed, factories closed or fired people

Unemployment Rate1929 - 1941

Causes:

• Weakness of the banking system– Banks made “unwise” loans– Banks lent $$ to people who invested in the stock market– When the market crashed, borrowers could not repay their loans– Without the $$ from loans, the banks could not give depositors

their $$ when they needed it– Result: many banks were forced to close

Bank Closures• 5,000+ banks closed between 1929-1932• If bank closed – depositors lost the $$ that they had

deposited• Often, a family’s life savings vanished overnight

A Good Old Timey Bank Run

http://www.youtube.com/watch?v=qu2uJWSZkck

The Snowball Effects of the GD

After the crash, the economy slid downhill at a fast pace

Stock market crash ruined investors no $$ from investors businesses could NOT grow or expand

businesses could NOT get loan $$ from banks BECAUSE the crash landed banks in trouble too

Bankrupt: when businesses are unable to pay debts

Factories cut back on production wages were cut people were fired unemployed workers had little $$

to spend the demand for goods fell further businesses went bankrupt & closed more people

were fired from working

WW1 Loans

After WW1, U.S. had loaned large amounts of $$ to European nations to pay off war debts…stock market

crash U.S. banks stopped making loans as they were hemorrhaging $$ U.S. banks demanded repayment of

European loans European banks began to fail

Hard Times• When the crash

happened, millions of Americans lived in cities and worked in factories

• When factories closed, the jobless had no $$ for food & no land to grow any on

Rising Unemployment

• As depression spread, unemployment rate soared

• ¼ workers were jobless• Millions worked

shortened hours or took pay cuts so people literally worked themselves to death

Rising Unemployment• The jobless lost their

homes• Streets filled with peddlers,

beggars, scavengers• Shoe shiners• Apple stands• Those who were rich now

experienced how the other half lived

The Human Cost

• Marriage & birth rates dropped

• Hungry people searched through dumps

• Many families split up as men & boys left to find work & hopefully one day return

• Many “rode the rails” living in railroad cars & hitching• A return to tenement housing & slum situations• Families starting canning to preserve food • The Great Depression shook the belief in an American

identity – total failure replaced confidence

The Human Cost

Hoover was deeply concerned as well as confused BUT didn’t think the gov’t should become directly involved

in helping to end the business crisis• He thought that would cause gov’t to become too powerful• We just fought with other countries led by dictators• He felt it was up to businesses to work together to end the

downslide

Government Relief Programs: programs to help the needy

• At first, Hoover was against these & he urged business leaders to keep workers employed/ maintain wages

• Hoover called on private charities to help the needy• Churches set up soup kitchens: places where the hungry

could get a free meal

More Gov’t Relief• Ethnic communities organized their own relief efforts• Conditions grew worse• Hoover realized other steps were needed• He set up public works: projects built by the gov’t for public use• Gov’t hired workers to build schools, dams & highways

More Gov’t Relief• By providing jobs, it enabled people to earn $$• Hoover asked Congress to approve the Reconstruction

Finance Corporation (RFC): 1932 – loaned money to banks, railroads & insurance companies to help them stay in business– The hope was that by saving these businesses, he would save

thousands of jobs