THE STOCK MARKET

CRASH & THE GREAT

DEPRESSION

CONSUMER ECONOMY BOOM• Consumers began to buy everything on credit• Installment plans were the new fad• By 1929, 60% of all cars and 80% of all

appliances were bought on credit• Advertising brought in $1.5 billion in 1927• First Fast Food Chain emerged, A&W• The number of millionaires doubled during

the 20s

COOLIDGE PROSPERITY• Calvin Coolidge had won the presidency in

1924• He declared America’s economy was based on

“laissez-faire”, which meant “the business of America is business”

• Huge profits of the 1920s were being made through three groups: Wall Street, Land Speculators, & Bootleggers

THREE CAUSE OF THE STOCK MARKET CRASH

• Speculation– Making high-risk investments in hopes of a high gain

• Buying on Margin– Allowed investors to buy stocks for only a fraction of its

price and borrow the rest of the money– Investors would put 10% down on the stock and borrow

the rest• Overproduction of Goods– Industrial growth and buying on credit caused for an

increase in supply and demand

A NEW LOOK• In 1928, Herbert Hoover won the presidential

race as Coolidge decided to not run• Slogan, “We in America are nearer to the final

triumph over poverty than ever before in the history of any land

• He was brought into a pressure cooker job; he had to continue American prosperity

THE PROGNOSTICATION• A crash was looming, but no one listened• In August 1929, Roger Babson advised wise

investors to pay up their loans and quit buying on margin because the market was going to crash

• On October 24, 1929, a large number of investors suddenly began to sell their shares

• This led to prices plunging

THE CRASH• Known as “Black Tuesday”, worried investors

quickly sold 16 million shares of stock on October 29, 1929

• This led to the crash of the stock market• Unable to raise the funds, thousands of

people were forced to sell their stock at huge losses

• Stockholders, in the end, lost over $30 billion

BANKING PROBLEMS• “Black Tuesday” also caused banks to fail was

well• No money paid back on loans = No banks• Many people tried to pull all their life savings

out of the banks, which also caused some to fail

• Also, many people were not able to even receive money they had stored in the banks

DEPRESSION• The Gross Domestic Product,

GDP, is defined as the total value of all goods and services produced during a given year

• Staggering statistics:– GDP fell 29%– Consumer buying dropped 18%– Construction dropped 77%– Investment dropped 98%– Unemployment rate rose to

25%

LAY THE BLAME• Hoover took the brunt of

the blame for the crash• People began to mock

Hoover:– Hoovervilles ---

shantytowns the homeless lived

– Hoover Flags --- empty pockets turned inside out

– Hoover Blankets --- Newspapers used as covers

HOOVER’S PROBLEMS• Salvation Army– Set up to aide people in NOT going hungry

• Revenue Act of 1932– Raised top taxes from 25% to 63%; taxed was

passed on to the consumers

FDR• Franklin Delano Roosevelt was elected president in 1932• Roosevelt’s plan for action was known as “The New Deal”• The Three R’s of Roosevelt’s plan was Reform, Recovery,

and Relief• FDR won the popular vote 28 million votes to 15 million

votes• Won the Electoral College 472 to 50• During his inauguration speech, he stated, “The only

thing we have to fear is fear itself”

WHO WAS THIS MAN?• FDR was the cousin of former president Teddy

Roosevelt• Married to Eleanor Roosevelt who played a vital

role in his presidency• Stricken with polio in 1921 and did not have usage

of his legs• Roosevelt conducted “fireside chats” to connect

with the American people on a personal basis• These were broadcasted over the radio

ROOSEVELT’S PRESIDENCY• On the day FDR took his

oath of office, there were about 15 million people standing in bread lines and in soup kitchens

• FDR assembled a “Brain Trust” to help make a change in society

• FDR coined his recovery acts of legislation the NEW DEAL

THE FIRST NEW DEAL• Civilian Conservation Corps• Federal Emergency Relief Act• Tennessee Valley Authority• National Industrial Recovery Act• Civil Works Administration• Public Works Administration• Banking Acts• Federal Deposit Insurance Corporation• Securities and Exchange Commission

THE SECOND NEW DEAL• Works Progress Administration• Social Security Act• Rural Electrification Administration• National Labor Relations Act• National Youth Administration• United States Housing Authority• United Auto Workers

KEYNESIAN THEORY• Roosevelt drew much of his inspiration for the

New Deal from the writings of British economist John Maynard Keynes

• He believed that a government’s deficit spending could prime the economic pump and jump-start the economy