The Great Depression

Germany and USA

Stock Market Crash

Was a sharp decline in U.S. stock market values in 1929 that contributed to the Great Depression of the 1930s.

Speculation

The act of conducting financial transaction that has substantial risk of losing value but also holds the expectation of significant gain.

Buying on Margin

Occurs when investors buys an asset by borrowing the balance from bank or broker.

Laissez Faire Economic

The driving principle behind is that the less the government is involved in the economy, the better off business, and society as a whole, will be.

Keynesian Economy

The idea that the government should spend more money even if it means going into deficits in order to prop up demand. This means they are much more present in lives.

New Deal

Was the three part program, relief, recovery and reform. Relief is the program that gave help to people in need, recovery is the programs were to fix the economy in the short term, and reform is to regulate the economy in the future to prevent future depression.

Causes of the Great Depression

Was caused by a combination of factors overproduction, banking failures, tariffs, gap between rich and poor, and reduction in purchasing.

Consequences of the Great Depression

The economic crisis led to bank closures, mass unemployment, homelessness, hunger and the despair and dejection of American people. 

Gold Standard

The system by which the value of a currency was defined in terms of gold, for which the currency could be exchanged. The gold standard was generally abandoned in the Depression of the 1930s.

Herbert Hoover

Was the 31st President of the United States. As the Depression deepened, he failed to recognize the severity of the situation or leverage the power of the federal government to squarely address it. However, his response to the crisis was constrained by his conservative political philosophy. He believed in a limited role for government and worried that excessive federal intervention posed a threat to capitalism and individualism. He felt that assistance should be handled on a local, voluntary basis

Hawley Smoot Tariff

Created protective tariffs (taxes) and increased rates on imported goods. It failed because of other nations retaliating by imposing their own tariff. It means there will be fewer buyers, less trade, fewer sales, and fewer sales.

FFB (Federal Farm Board)

He extended federal control over agriculture by expanding the reach.The idea was to make government-funded loans to farm cooperatives and create “stabilization corporations” to keep farm prices up and deal with surpluses. That fall, Hoover pushed into full action, lending to farmers all over the country to keep prices up. The plan failed miserably, as subsidies encouraged farmers to grow more, exacerbating surpluses and eventually driving prices way down.

First New Deal

Compromises Roosevelt’s programs before 1935, many of which were passed in the first hundred days of his presidency.

Civilian Conservation Corps

Which paid young people to build national parks

National Recovery Act

Established the National Recovery Administration (NRA). The NRA was designed to be government planners and business leaders working together to coordinate industry standards for production, prices and working conditions.

Federal Emergency Relief Administration

To give welfare payments to people desperate. Roosevelt became worried that people would be dependent on relief handouts, so he focused on making them temporary.

Tennessee Valley Authority

Built a series of dams in the to control floods, prevent deforestation, to provide cheap electric power. TVA was controversial because it put the government into the competition with private companies.

Second New Deal

Shifting away from recovery and towards economic security.

National Labor Relations Act (Wagner Act)

Guranteed the right to unionize and it created a relations board to hear disputes over unfair labor practices.

Social Security Act of 1935

Unemployment insurance, aid to the disabled, aid to the poor families with children, and retirement benefits. Is funded through payroll taxes rather than general tax revenue, represented a transformation in the relationship between the federal government and American citizens.

Hyperinflation

Rapid general price increase in an economy

Deflation

When prices drop, businesses cut costs by laying off workers. These workers then cannot buy anything so inventories continue to increase while the prices drop further. Banks weren’t lending money, so employers couldn’t borrow it to make payroll and couldn’t pay employees. It would cause businesses to be bankrupt, leaving more and more workers unable to purchase the goods and services that would keep it open.

Inflation

Inflation is the term used to describe the general increase in prices of goods and services in an economy over some time.

Doubled the Federal Expenditure (Hoover)

It was not enough because Hoover didn’t allow the federal government to take over the situation completely. He relied on state and local governments to stimulate the economy, which was inefficient. It’s not surprising considering that in 1929, Federal expenditures accounted for 3% of our growth domestic product, but today it’s more like 20%.

Federal Reserve

Since people couldn’t afford to buy stuff because they didn’t make enough money, the banks started letting people buy on credit. Because it made the interest rates low, it made more people buy on credit. This made companies produce more stuff, creating overproduction again. They made interest rates higher to get money. This then made people not buy as much of items because they already owed money and now it costs more money to borrow or buy on credit. This would lead to decreased wages for workers and workers getting fired, which means they had less money to spend, but also leads to even less demand.

Frozen Credit System

A frozen credit system means less money is in circulation, leading to deflation and inflation.

Banking System At the Time

Because the Federal Reserve System, created in 1913, was small and had to be reliant on itself—a small institution. Does deserve a good chunk of blame because of not rescuing the banks and not infusing money into the economy to combat this deflation cycle.

Economic Section of Agricultural

It suffered throughout the 1920s and farm prices kept dropping because American farms had increased a lot to provide more food and crops to soldiers, and the expansion led many farmers to mechanize their operations. With a combination of overproduction and low prices, their farms were foreclosed upon.

Cause 1: Reduction in Purchasing

With the stock market crash and the fears of further economic woes, individuals from all classes not being able to purchase items. This then led to a reduction in the number of items produced and thus a decrease in the workforce. They were unable to keep up with paying for items they had bought through installment plans, more inventory began to accumulate.

Bank Failures

Bank deposits were uninsured and thus as banks failed people simply lost their savings. Surviving banks, unsure of the economic situation and concerned for their own survival, were no longer as willing to create new loans. This intensified the situation leading to less and less expenditures.

Great Depression in Germany

The economy had shrunk in half, about about 1/8 of the population was facing unemployment. There was a very shaky government because they were running out of money while assisting. People were feeling weak, was depressed, and had a fear of communism.

Video on Great Depression in Germany

Germany was in deep trouble following the Wall Street Crash. It had a huge over-reliance on American loans provided through the Dawes Plan. These were short-term loans to help Germany recover economically and to pay off reparations. Long lines of unemployed people queued for meagre food supplies. Diseases like TB or pneumonia increased quickly infant mortality rose.