The Great CrashOct. 29,1929

History of the Federal Reserve System

• During the 1800s banks often closed during economic crises. People lost what they deposited & money could not be exchanged for gold.

• Crises in 1873, 1883, and 1893 caused many banks & businesses to fail. In 1907 Congress developed a plan.

• 1913- President Wilson established the Federal Reserve System.

• The Federal Reserve System still functions today to prevent bank failures & regulate the supply of money.

A Weak Economy that Seemed Strong

1914-1929• Uneven distribution of wealth- Rich people got richer. Poor

people became more poor. Workers wages increased only slightly. Most people could not afford to consume the products of U.S. industry.

• Too much production with too little demand- people could not buy all the goods being produced. Most industries slowed down production by mid-1929.

• Widespread use of credit- People began to buy goods on credit. Many owed more money than they could pay back.

• Stock speculation- Many people borrowed money to buy stocks, hoping it would always rise. When stocks did not rise, those who borrowed did not have the money to pay for them.

• Farm problems- Many farmers had to borrow money to buy more land & grow crops . After WWI many European farms went back into production, decreasing the demand for American farm products. The government did not help farmers. Many lost their farms.

• Weak industries- Older industries, such as iron, RRs, mining & textiles, did not share in general prosperity

• International economic problems- U.S. kept tariffs high on foreign goods to protect U.S. industries. However, foreign countries could not sell their goods in the U.S. and in turn, could not pay back WWI debts to the U.S.

The BUSINESS CYCLE

What followed the Great Crash?• In 1929, in a period of ten weeks, stocks on the New York Stock

Exchange lost 50 percent of their value. • As stocks continued to fall during the early 1930s, businesses failed,

and unemployment rose dramatically. • By 1932, one of every four workers was unemployed. • Banks failed and life savings were lost, leaving many Americans

destitute. With no job and no savings, thousands of Americans lost their homes.

• The poor congregated in cardboard shacks in so-called Hoovervilles on the edges of cities across the nation; hundreds of thousands of the unemployed roamed the country on foot and in boxcars (riding the rails) in search of jobs.