18.1 Notes

1929 some economists were observing that soaring stock prices were based on little more than confidence.

• The prices had no basis in reality.

It became clear that too much money was being poured into stocks. 

Investors gambled with money they did not have, on high-risk stocks in hopes of turning a quick profit.

• If the market’s upward climb suddenly reversed course, many investors would face economic devastation.

• September 3, 1929, the stock market began to sputter and fall.

• Prices peaked and then slid downward in an uneven way.

  • At the end of October, the slide gave way to a free fall.

• After the Dow Jones average dropped 21 points in one hour on October 23, many investors concluded that the boom was over.

• They had lost confidence, the very thing that had kept the market up for so long.

• October 24, the next day came to be known as Black Thursday.

• With confidence in the stock market failing, nervous investors started to sell.

  • Stock in General Electric that once sold at $400 a share plunged to $283.

• Across the US, investors raced to pull their money out of the stock market.

  • On October 29, Black Tuesday, the bottom fell out.

• More than 16 million shares were sold as the stock market collapsed in the Great Crash.

  • Billions of dollars were lost.

  • Many speculators who had bought stock on margin lost everything they had.

    • President Hoover tried to soothe Americans by insisting that the “business of the country is on a sound and prosperous basis.”

  • November 13, the Dow Jones average had dropped like a brick.

    • Its high was 381 to 198.

  • The Great Crash represented a rare extreme in the nation’s business cycle and a turning point for the American economy.

  • The stock market crash marked the beginning of the Great Depression. 

    • A period lasting from 1929 to 1941 in which the economy faltered and unemployment soared.

  • Though it did not start the depression by itself, the crash sparked a chain of events that quickened the collapse of the US economy.

  • One of the first institutions to feel the effects of the stock market crash was the country’s banking system.

  • The crisis in confidence continued as frightened depositors feared for their money and tried to withdraw it from their banks.

  • Few banks could survive a sustained “run” of requests by depositors for their money.

  • In 1929, some 650 commercial banks failed.

    • A year later, 1,350 failed.

    • And a year after that, nearly 2,300 went under.

  • By 1932, many Americans feared that no banks would be left standing.

  • Another cause of many bank failures was misguided monetary policy by the Federal Reserve.

  • During the 1920s, the Federal Reserve, cut interest rates to stimulate economic growth.

    • Which regulates the amount of money in circulation.

    • The “Fed” limited the money supply to discourage lending.

  • As a result, there was too little money in circulation to help the economy.

  • When the stock market crashed investors went to the banks to secure whatever they had left.

    • The banks were cleaned out of currency and forced to close.

1929 some economists were observing that soaring stock prices were based on little more than confidence.

• The prices had no basis in reality.

It became clear that too much money was being poured into stocks. 

Investors gambled with money they did not have, on high-risk stocks in hopes of turning a quick profit.

• If the market’s upward climb suddenly reversed course, many investors would face economic devastation.

• September 3, 1929, the stock market began to sputter and fall.

• Prices peaked and then slid downward in an uneven way.

  • At the end of October, the slide gave way to a free fall.

• After the Dow Jones average dropped 21 points in one hour on October 23, many investors concluded that the boom was over.

• They had lost confidence, the very thing that had kept the market up for so long.

• October 24, the next day came to be known as Black Thursday.

• With confidence in the stock market failing, nervous investors started to sell.

  • Stock in General Electric that once sold at $400 a share plunged to $283.

• Across the US, investors raced to pull their money out of the stock market.

  • On October 29, Black Tuesday, the bottom fell out.

• More than 16 million shares were sold as the stock market collapsed in the Great Crash.

  • Billions of dollars were lost.

  • Many speculators who had bought stock on margin lost everything they had.

    • President Hoover tried to soothe Americans by insisting that the “business of the country is on a sound and prosperous basis.”

  • November 13, the Dow Jones average had dropped like a brick.

    • Its high was 381 to 198.

  • The Great Crash represented a rare extreme in the nation’s business cycle and a turning point for the American economy.

The stock market crash marked the beginning of the Great Depression. 

• A period lasting from 1929 to 1941 in which the economy faltered and unemployment soared.

Though it did not start the depression by itself, the crash sparked a chain of events that quickened the collapse of the US economy.

One of the first institutions to feel the effects of the stock market crash was the country’s banking system.

The crisis in confidence continued as frightened depositors feared for their money and tried to withdraw it from their banks.

Few banks could survive a sustained “run” of requests by depositors for their money.

In 1929, some 650 commercial banks failed.

• A year later, 1,350 failed.

• And a year after that, nearly 2,300 went under.

By 1932, many Americans feared that no banks would be left standing.

Another cause of many bank failures was misguided monetary policy by the Federal Reserve.

During the 1920s, the Federal Reserve, cut interest rates to stimulate economic growth.

• Which regulates the amount of money in circulation.

• The “Fed” limited the money supply to discourage lending.

As a result, there was too little money in circulation to help the economy.

When the stock market crashed investors went to the banks to secure whatever they had left.

• The banks were cleaned out of currency and forced to close.

Farmers who survived the tumble in prices were still not safe.

• Through the mid-1930s, a drought add to their problems.

Droughts were often more devastating in the Great Plains than in the East or Midwest.

New farming methods made drought conditions worse.

• Farmers then had moved onto the Plains and plowed under much of the natural grasses in order to plant oceans of winter wheat.

All this intensive farming reduced the amount of grassland available to graze livestock, causing overgrazing on what was left.

1932, human interaction led to loose topsoil caused by over farming and overgrazing.

• The winds kicked up towering dust storms that began to blow east.

These gigantic clouds of dust and dirt could rise from ground level to a height of 8,000 feet.

• The dust storms moved as fast as 100 miles per hour and blotted out the sun.

Those unfortunate enough to be caught in a dust storm were temporarily choked and blinded by the swirling dirt.

• The storms killed cattle and birds, blanketed rivers, and killed fish.

Dirt seeped into houses, covering everything with a thick coat of grime.

Some dust clouds blew East all the way to the ocean

• The dust was twice as much as what was scooped out to build the Panama Canal.

President Hoover did not cause the Great Depression, but Americans looked to him as their President to solve the crisis.

As the effects of the Great Depression on the US economy worsened, he tried several different approaches.

Although Hoover failed to discover the right formula, it was not because of a lack of effort.

• At the start of the economic downturn, Hoover followed a hands-off policy.

The President viewed the upswings and downswings of business cycles as natural occurrences.

• He felt that government should not interfere with such events.

• Periodic depressions were like storms.

They could not be avoided, but strong businesses could weather them without the support of the government.

Despite rising unemployment, President Hoover rejected demands for the federal government to provide payments to the unemployed and needy.

He believed the role of government was not to provide help to people.

• Instead, he believed that help should come from private organizations, like the Salvation Army.

As the depression deepened, Hoover was finally pressured to act.

• He cut taxes, increased federal spending on public projects, and directed that surplus farm crops be brought.

In 1932, Hoover established a federal agency to provide emergency loans to banks and businesses.

• However, Hoover’s policies were seen as being too little, too late.

By 1932, unemployment reached 13 million people.

• Unemployment 25%, banks failed, savings gone, Homelessness increasing everyday.

Governor of NY, Franklin D. Roosevelt (FDR) accepted the Democratic Party’s nomination as president.

• Falling into water in North Atlantic caused him to get sick and get Polio.

FDR will pledge a “New Deal,” which was the federal government playing a more active role in promoting recovery and providing relief to Americans.

In his first 100 days in office, a flood of bills were put before Congress.

• On the very first day of Congress, they passed a bill to stabilize the country’s failing banking system.

• Roosevelt submitted hundreds of bills, explaining these measures in terms of the three R’s

Relief, Recovery, and Reform.

Relief measures were short-term actions designed to tide people over until the economy recovered.

Federal Emergency Relief Act

• Funded state and local government to provide emergency relief, and enabled millions of people to be hired on projects

Civilian Conservation Corps

• Gave jobs to young men, such as planting trees and cleaning up forests. Members of the CCC lived in camps and received free food. Most of their pay was sent to their parents.

Public Works Admin.

• Created federal jobs by building public projects, such as schools, roads, and bridges.

Works Progress Admin.

• Created jobs by hiring artists, writers, and musicians to paint murals, produce plays, and create artworks.

Roosevelt realized that the key to recovery was to stimulate demand. 

Priming the Pump

• Roosevelt believed in pouring money into the economy to get it working again. By putting government money into consumers’ hands, they would spend more, increasing demands. leading to more workers hired, further increasing purchasing power and consumer demand.

National industrial Recovery Act

• Asked businesses to voluntarily follow codes which set standard prices and minimum wages. 1935, the Supreme Court found it unconstitutional.

Agricultural Adjustment Acts

• The government paid farmers to plant less in the hope of increasing crop prices. Supreme Court found it Unconstitutional.

Reform measures were aimed at the structure of the American economy and the belief that government should protect individuals.

Federal Deposit Insurance Corporation

• Insured bank deposits so that people would not lose their savings in the event of a bank failure

Tennessee Valley Authority

• Built 21 government-owned dams along the Tennessee River, controlling floods and producing electricity.

National Labor Relations Act

• Often called the Wagner Act, gave workers the right to form unions.

Securities and Exchange Commission

• Was created to watch over the stock market and guard against another stock market collapse

Social Security Act

• Was probably the most important measure of the New Deal. It provided workers with unemployment insurance, old age pensions, and insurance if they died early.

Fireside chats became an important way for Roosevelt to communicate with the American people.

• In his fireside chats, FDR explained the challenges facing the nation.

Roosevelt used legislation passed during the second phase of the New Deal to try to accomplish these goals.

This second wave of legislation addressed the problems of the elderly, the poor, and the unemployed; 

• created new public works projects; 

• helped farmers; 

• enacted measures to protect workers’ rights.

It still focused on relief, recovery, and reform, but it now had a more long-term focus.