9 Great Depression and New Deal Key Terms Overproduction and under consumption Bonus March Alphabet Agencies Dust Bowl I Factors in the Crash 1 Global economy post WWI Europe s economy was in very very bad shape after WW1 For the United States this could be a good thing we could help them get better by selling them their stuff This is was drives perception of American economy perception it should be doing a kick ass job in the 1920s because there is no competition from Europe Unfortunately this isn t true if Europe needs U S stuff they need money which they don t have Global economy is actually quite shaky 2 Overproduction and Under consumption In response to devastation U S starts making stuff at extreme levels which means they are producing way too much stuff Their overproducing making a lot of stuff but people aren t buying it With idea Europeans should buy this stuff now all they have are these products just sitting there meaning United States is not making money Overproduction and under consumption starts happening in 1920 while companies profits start declining This worries American companies The first thing they do to try and pretend they aren t losing money is to look to the workers 3 Layoffs and declining wages Workers are working to make all of this stuff while no one is buying it so company freaks out Companies cut wages or even cut jobs layoffs The savings by not spending money on workers theoretically boosts profit Companies are still producing stuff but now in addition to under consumption the workers that have been cut so no money which means they can t buy the stuff either 4 Speculation on the stock market the stock market really starts kicking into high gear in early 1900s Essentially gambling These companies are pretending they are doing great so these companies start going up In this time period you don t have to tell anyone when your company is doing badly Banks have money our money and give it to someone else with expectation they give it back Buying on the Margin In this time period banks would loan money for people to invest in stock market basically going to gamble These loans were short term 6 12 months These short term loans come with really high interest rate 15 20 percent Because everyone is pretending their business it great stock market goes up so people continue to invest more This system of buying on the margin is working great until market goes down Buying on the margin only works if the market continues to go up Basically can never go down or you are screwed People start figuring this out and people are a little less interest in investing Summer of 1929 people notice it is going down not up 5 Black Tuesday October 29 1929 Day American stock market crashes crashes worse than it has ever before In one day the stock market lost 16 million shares of stock which was 14 billion dollars ONE DAY This vanishes because it never really existed in the first place What starts happening is people are so blown away they question what it really means Does not start meaning anything until they go to bank and can t get money out because money got loaned out to people playing the stock market Banks start shutting down II Early Responses 1 Herbert Hoover and Old School Capitalism Herbert Hoover president at time Supply and demand what United States rely on Old school capitals think it is normal to have ups and down with supply and demand If you just leave it alone it will balance itself out Hoover thinks the government should do absolutely nothing in this situation One of those low times bad times assumes it will get better For next couple of ears companies try and straighten things up But problem is a lot of people lost a lot of money so these companies as hard as they try they need to start laying off workers Now there is more people out of work can t make money can t buy More it s not getting better it gets worker In 1932 and the unemployment rate for U S is 25 When this statistic was made they only counted full time industrial workers meaning the unemployment rate was way bigger Part time employment is not included in the 25 percent Another group of people not included were the farm workers 25 percent is actually closer to 40 percent Also there is a presidential election year in 1932 hoover should be worried because U S is doing badly 2 Reconstruction Finance Corporation 1932 a deal that Herbert hoover made with congress Finally came to conclusion maybe government needs to help economy Tells congress you need to take government money taxes to help kick start economy The money goes to 3 industries banks railroads insurance companies Wants to give money to industries not people because industries are who hire people and they will trickle money down to people Give 10 million dollars to share which does not work very well As the law is written these 3 industries do not have to account as to how they spent this money Very unsuccessful at kick starting company 3 Bonus March one of first groups of Americans targeted for layoffs were WW1 veterans often first workers let go They did this because they were newer workers to the company In 1925 congress passed a law authorizing a cash bonus for WW1 soldiers idea behind this bonus that was while they were fighting in war they were not actually at home earing money This bonus can go all the way up to 1500 dollars The catch is you cannot collect until 1945 Over this 20 year span the vets will start to die meaning they won t have to pay as much In 1932 they are doing really badly their chances of making it that far are slim WW1 vets organized a protest led by American legend in Washington D C 40 50 thousand they marched down D C making their presence known because they want their bonus This looks really bad for the government The president has a couple options 1 pay them 2 get rid of these guys by using police force Try to clear protests camps but vets fight back The president calls in the army on ww1 troops For Hoover the headquarters just across river calls the biggest generals up Get on horseback bust out 100 000 soldiers with riffles and use them to clear out camps of ww1 vets also using tear gas In the process 20 or so of the vets were killed couple kids injured and a wife miscarried All of this to make sure they were not disturbing the peace In the media this plays out very bad FDR Frank Roosevelt wins election Two words for his campaign are hope and change III FDR and A New Deal 1 Reform Banks and Financial Practices