l Build up to the Crash there were warning signs Spring 1929 Markets stocks were jittery world wide March Dow Jones drops but stabilizes what is the Dow Jones Industrial Average Dow Jones ID: 791043
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1929 Crash, the Great Depression and New Deal
Slide2Build up to the Crashthere were warning signs
Spring 1929- Markets (stocks) were jittery- world wide
March- Dow Jones drops but stabilizes (what is the Dow Jones Industrial Average? Dow Jones)August- Federal Reserve (aka the Fed) raises the discount rate to 6% (very high for 1929) the discount rate is what the Fed charges to lend money to banks; raising the discount rate makes it more expensive to borrow money.September 26- Bank of England raises rate to protect the gold standard. (this also makes it more expensive to borrow)
Slide3September 29- British Market plunges (large London investment house goes under- similar to Lehman Brothers failure in 2008)Early October- British question the strength of US Stock Market; Wall Street Journal agrees
October 24 (Black Thursday)- market falls 11% during trading but recovers to close 2% down
October 28 (Black Monday)- market fall 13%, does not recover at closeOctober 29 (Black Tuesday)- Market crashes, the Dow Jones loses 90% of it’s valueBanks begin to fail, only able to pay customers $.10 on the dollar
Slide4Slide5A decade of excess comes crashing down
People used saving to buy stocks hoping to make big profits.Business and farmers tool out bank loans to keep things going.
Factories produced products faster than people could buy them causing a slow down, workers got laid off
Slide6Farm failures
Slide7Closed Factories
Slide8Banks lose money
Business and farmers couldn’t pay back loans.Banks had trouble collecting their money.
Banks started going out of business
Slide9Causes of
Easy CreditUneven distribution of wealth
Overproduction of consumer goodsBuying stock on marginBank failures
Slide10Bank runs
Slide11When banks failed, people lost their life savings
Credit:
Courtesy of Temple University, Urban Archives, Philadelphia, Pa During the early years of the Great Depression, runs on deposits forced hundreds of banks throughout Pennsylvania to liquidate their affairs and close their doors. Allentown lost six of its ten banks, and in Philadelphia more than fifty banks, most of them small, also failed, taking with them all of their depositors" savings.
Slide12videoCrash of 1929 (PBS)
Slide13Monetary and Fiscal Policy
Monetary Policy- actions of the Federal Reserve to control the quantity of money in circulationFiscal Policy- federal government action in taxation, spending and public debt
Federal Reserve System- the central banking system of the United States; controls monetary policy
Slide14How the Fed works
http://content.time.com/time/video/player/0,32068,57544286001_1948059,00.htmlInterest rates control the amount of money available, or in circulation.
The lower the interest rate, more money is available and it allows more people and businesses to borrow money. Lower interest rates also make investing in the stock market more attractive.Higher interest rates tighten the money supply, make it more expensive to borrow money and investing in stocks goes down. Investing in treasury notes and bonds goes up.
Slide15Why do we care?
During economic downturns (aka-recessions,) the Federal Reserve can help give the economy a “shot in the arm” by lower interest rates to help stimulate the economy. During the Great Depression, the Federal Reserve did not do this.
Slide16Hoover
President Herbert Hoover believed in a “hands off” approach to the economyHe believed in “rugged individualism”, people should help themselves in harm times.People who lost their homes lived in “tent cities” made of scrapes of metal and any other materials they could find. They called these places Hoovervilles.
Slide17Hoovervilles
Slide181932 Election
Franklin Delano Roosevelt wins the presidencyhttp://youtu.be/3tyvvjWtc-Y
Slide19FDR1933-1945
Slide20The New Deal
Goals- Relief, Reform and RecoveryThe 100 Days: the first phase of the New Deal in
which his administration presented Congress with a broad array of measures intended to achieve economic recovery, to provide relief to the millions of poor and unemployed, and to reform aspects of the economy that Roosevelt believed had caused the collapse.
Slide21Bank Holiday
His first step was to order all banks closed until Congress, could pass legislation allowing banks
that were stable to reopen; this “bank holiday,” as Roosevelt called it, was intended to end depositors’ runs, which were threatening to destroy the nation’s entire banking system. The bank holiday, combined with emergency banking legislation made people feel more secure about keeping their money in the banks.
Slide22Bank Reform
Emergency Banking Act: the law empowered the President through the Treasury Department to reopen banks that were solvent and assist those that were not
.Glass-Steagall Banking Reform Act: Created the FDIC (Federal Deposit Insurance Corporation) which insured deposits, today up to $250,000.
Slide23Glass-Steagall
Glass-Steagall also said commercial banks could not make risky investments in the stock market with depositors money. (commercial banks and investment banks were separate, a virtual firewall was placed between the two.)
George Bailey-commercial Gordon Gekko-investment
Slide24Crash CoursesThe Great Depression
New Deal
http://youtu.be/GCQfMWAikyUhttp://youtu.be/6bMq9Ek6jnA
Slide25New Deal ProgramsAlphabet Soup
Emergency Banking Act/Federal Deposit Insurance Corporation (FDIC)
Right after taking office as President, FDR shut down all of the banks in the nation and Congress passed the Emergency Banking Act which gave the government the opportunity to inspect the health of all banks. The Federal Deposit Insurance Corporation (FDIC) was formed by Congress to insure deposits up to $5000
Slide26Get people working(no welfare or unemployment, no social safety nets)
Federal Emergency Relief Administration (FERA)
Led by Harry Hopkins, a former social worker, this agency sent funds to depleting local relief agencies. Within two hours, $5 million were given out. Mr. Hopkins believed that men should be put to work and not be given charity. His program also funded public work programs
Slide27Civil Works Administration (CWA) Civilian Conservation Corps (CCC)
This public work program gave the unemployed jobs building or repairing roads, parks, airports, etc.
This environmental program put 2.5 million unmarried men to work maintaining and restoring forests, beaches, and parks. Workers earned only $1 a day but received free board and job training. From 1934 to 1937, this program funded similar programs for 8,500 women.
Slide28Indian Reorganization Act of 1934
National Industrial Recovery Act (NIRA) of June 1933
This act ended the sale of tribal lands and restored ownership of unallocated lands to Native American groups. The decline in the industrial prices in 1930s caused business failures and unemployment. The NIRA was formed in order to boost the declining prices, helping businesses and workers. The NIRA also allowed trade associations in many industries to write codes regulating wages, working conditions, production, and prices. It also set a minimum wage.
Slide29Public Works Association (PWA) Federal Securities Act of May 1933/ Securities and Exchange
Commission (SEC) Home Owners Loan Corporation (HOLC) / Agriculture Adjustment Administration (AAA)
The PWA launched projects such as the Grand Coulee Dam on the Columbia River. This act required full disclosure of information on stocks being sold. The SEC regulated the stock market. Congress also gave the Federal Reserve Board the power to regulate the purchase of stock on margin.
In order to help people keep their houses, the HOLC refinanced mortgages of middle-income home owners. The AAA tried to raise farm prices. It used proceeds from a new tax to pay farmers not to raise specific crops and animals. Lower production would, in turn, increase prices.
Slide30Tennessee Valley Authority (TVA) (May 1933
)Works Progress Administration (WPA) 1935-1943 Farm Security Administration (FSA) National Labor Relations Act (Wagner Act)
The TVA helped farmers and created jobs in one of America’s least modernized areasThis agency provided work for 8 million Americans. The WPA constructed or repaired schools, hospitals, airfields, etc.
The FSA loaned more than $1 billion to farmers and set up camps for
migrant
workers
.
It legalized practices allowed only unevenly in the past, such as closed shops in which only union members can work and collective
bargaining.
The act also set up the National Labor Relations Board (NLRB) to enforce its provisions
Slide31Fair Labor Standards Act of 1938 Social Security Act
This banned child labor and set a minimum wage.
This act established a system that provided old-age pensions for workers, survivors benefits for victims of industrial accidents, unemployment insurance, and aid for dependent mothers and children, the blind and physically disabled.
Slide32Slide33