Lesson 7 : Lesson 7 The Great Depression Difficult Days : Difficult Days The Great Depression:
A period of unprecedented:
Industrial and agricultural collapse. Slide 3: Trouble began to appear in the 1920s.
Majority of people had no savings.
Majority of seniors lived in poverty.
Industrial workers had seasons of unemployment.
Pay rates were not keeping up with growth.
Gains in wages were uneven.
Textiles/coal mining – pay decreases.
Automotives/electrical manufacturing – pay increases.
80% of the nation’s wealth held by 10% of the population.
Demand was not keeping up with supply. The Bull Market of the late 1920s : The Bull Market of the late 1920s Stock prices increased at twice the rate of industrial production.
Many who owned stock gained access to the markets through easy credit margin accounts.
Allowed investors to purchase stock with only a small down payment.
The remainder, borrowed from a broker.
The stock’s shares used as collateral.
Brought about an optimistic attitude on Wall Street. Black Tuesday : Black Tuesday Bull Market peaked in September 1929.
Monday, October 29:
Dow loses 28 points.
Tuesday, October 20:
The market crashes.
Buyers could not be found.
Easy credit margin accounts crumbled.
Confidence in the market destroyed. Slide 6: Manufacturers cut production and began laying off employees.
Layoffs resulted in further cuts in consumer spending which resulted in more layoffs.
Banks failed as nervous depositors withdrew their money (run on the banks).
Savings vanished – No safety net.
High unemployment was devastating. Unemployment Rates Rise : Unemployment Rates Rise 1930
Unemployment Rate: 9%
Unemployment Rate: 25% Presidential Response : Presidential Response President Hoover failed to respond properly.
Worried more about undermining individual initiative.
Recovery plan centered on restoring business confidence.
Reconstruction Finance Corporation (RFC).
Designed to make government credit available to distressed banks, railroads, insurance companies, etc.
Lack of consumer spending made the RFC of little value to businesses. Slide 9: 1932
Congress authorized the RFC to give $300 million to states that were using up assistance funds.
Things were made worse when:
The Federal Reserve tightened credit.
Interest rates rose.
Forced the closure of small banks.
Congress passed the Smoot-Hawley Tariff.
Raised import duties (taxes).
Nations responded by raising their own tariffs.
World trade declined.
The Depression was a world-wide crisis. Depression Era Violence : Depression Era Violence Violent protests broke out around the nation.
March 7, 1932:
Communist organizers led a march of several thousand Detroit auto workers and unemployed on Dearborn, Michigan.
Police fired tear gas and bullets.
Four protestors killed.
Fifty protestors wounded. Depression Era Violence : Depression Era Violence Spring 1932:
Veterans gathered in D.C. to demand WWI bonuses.
The U.S. Army evicted many veterans.
Visual proof of Hoover Administration’s failure. The Election of 1932 : The Election of 1932 Democrats:
Franklin D. Roosevelt (NY).
President Herbert Hoover.
Franklin Roosevelt (D) won:
Electoral College: 472-59.
Popular Vote: 57%.
Democrats gained control of both Houses. The New Deal : The New Deal Roosevelt emphasized two points:
His health was good and his paralysis would not impact his performance as President.
He was a man of action.
He promised “a new deal for the American people”.
The New Deal:
Refers to Roosevelt’s policies to attack the problems of the Great Depression.
Included relief for the poor and unemployed, efforts to stimulate the economic recovery, and social security. Slide 14: March 4, 1933:
Roosevelt takes office.
Nearly all of the nation’s banks were closed.
The economy faced paralysis.
The President asked Congress for sweeping powers to deal with the economic crisis.
Roosevelt declared a bank holiday. Closing all banks temporarily.
Emergency Banking Bill:
Allowed the Federal Reserve to support the nation’s banks by providing funds and buying preferred banks. Slide 15: Within a month, 75% of the nation’s banks were operating again.
Following the fireside chats, the number of deposits outnumbered the number of withdrawals.
Roosevelt signed 15 major pieces of legislation over the next 100 days.
Meant to move the country along on three paths: recovery, relief, and reform.
Meant to stimulate the economy and provide a safety net for those who lost their jobs. Slide 16: Bank Act of 1933:
Created the Federal Deposit Insurance Corporation (FDIC).
Insured deposits up to a fixed amount in FDIC insured banks and state banks that participate.
The Security and Exchange Act of 1934:
Created the Securities and Exchange Commission.
Licenses and supervises stock agencies. Slide 17: Social Security Act of 1935:
Created systems of unemployment, old age, and disability insurance and provided for child welfare.
Pension for retirees (65+) was controversial.
Required payments, failed to cover domestic and agricultural workers and provided no health insurance.
Federal aid to families with dependent children and the disabled.
Helped fund state-run unemployment compensation systems. Slide 18: 1937: The New Deal began to slow.
Public and political support waned.
The Roosevelt Recession.
Roosevelt cut $4 billion from federal budget.
Cut relief spending.
Unemployment soared back to 19%.
Economy unable to cope with reduced spending and thousands of unemployed.
Tarnished Roosevelt’s “recovery” image.
Roosevelt restored spending. Slide 19: 1939:
The economy was growing again.
Unemployment was still high.
1941 and World War II:
Spending connected with the War, and not the New Deal, propelled the American economy out of the Depression and to new levels of prosperity.