The Great Depression Begins

Chapter 17, Section 1

The Long Bull MarketWhat is the Stock Market?What is a Bull Market?Prosperous times in the 1920s caused many

Americans to invest heavily in the stock market.

Long Bull MarketAs the bull market continued, many investors bought

stocks on margin. (This was considered safe as long as stock prices continued to

rise)If stock began to fall, the broker could issue a margin

call demanding the investor repay the loan immediately.In the late 20s, investors bought stock blindly, without looking at a company’s earnings & profits. Speculation occurred when investors bet on

the market climbing & sold whatever stock they had to try to make a quick profit.

The Great CrashBy 1929, a lack of new investors in the stock

market caused stock prices to drop & the bull market to end.

As stockbrokers advised their customers of margin calls, investors responded by putting their stocks up for sale, causing the stock market to plummet further.

The Great CrashOctober 29, 1929: BLACK TUESDAY –stock

prices fell drastically, resulting in a $10 to $15 billion loss in value.

This did NOT cause the Great Depression, it did make the economy unable to handle other problems.

Banks in a TailspinThe stock market crash weakened the nation’s banks. Banks lost money on their investments & speculators

defaulted on loans.The gov’t did not insure deposits, so customers lost

their money if a bank closed

Bank runs: When all the customers run to the bank to withdraw their money at the same time—forcing the bank to collapse.

Reasons for the Great Depression1. Overproduction—efficient machinery caused more

goods to be produced than Americans could afford to buy.

2. Uneven Distribution of Wealth—1929, the top 5% of American households earned 30% of the country’s income. More than 2/3 of the nation’s families earned less that $2500 a year.

3. Low Consumption—Worker’s wages didn’t increase fast enough to keep up with the production of goods.

As sales decreased, workers were laid off, a chain reaction followed that hurt the economy

Reasons for the Great Depression (Cont’d)4. Installment Plan—huge debts left families unable to

purchase other goods. 5. Hawley-Smoot Tariff—raised tax on imports which

intensified Depression. Other countries raised tariffs against American products in return, so fewer products could be sold overseas.

6. Interest Rates—Instead of raising interest rates to stop speculation, the Federal Reserve Board made the mistake of lowering rates. • This encouraged banks to make risky loans & misled

business owners into thinking the economy was still expanding.

Life During the DepressionChapter 17, section 2

The Depression WorsensBy 1933, thousands of banks had closed & millions

of American workers were unemployed. Unemployed workers often stood in Bread Lines to

receive free food or at Soup Kitchens where private charities gave a free meal to the poor.

ShantytownsAmericans unable to pay their mortgage faced

foreclosure. Bailiffs escorted unwilling families out onto the

streets.Many new homeless ppl built shacks in

shantytowns, or “Hoovervilles” bc they blamed Pres Hoover for their trouble.

Hobos, hitched rides on railroads searching for a better life.

The Dust BowlAs crop prices dropped in the 20s, many American

farmers left their fields uncultivated. A terrible drought in the Great Plains caused the region to become a Dust Bowl.

Dust BowlMany Midwestern & Great Plains farmers lost

their farms.Many families moved west to California hoping to

find a better life, but most still faced poverty & homelessness.

Escaping the DepressionAmericans escaped their hardships by going to the

movies & listening to the radio. Stories tended to be about overcoming hardships & achieving success.

Walt Disney produced the first feature-length animated film, Snow White & the 7 Dwarfs.

Other films: Wizard of Oz, Gone with the Wind were about beating adversity & having a better life.

Escaping the DepressionFamilies gathered around the radio daily to hear

news or listen to comedy shows like the Lone Ranger.

Dramas called soap operas became very popular with housewives. (makers of laundry soap sponsored them)

Hoover RespondsChapter 17, Section 3