HIST 106 1st Edition Lecture 19 Outline of Last Lecture I Introduction II The war to end all wars III The fourteen points IV The Paris peace conference Outline of Current Lecture I Roots of Depression II Black Tuesday on Oct 29th 1929 III What followed IV Hoover s response V Coping Current Lecture Roots of depression o Long bull market Easier to get money and the money is worth more so in the 1920s more people invest in the stock market By 1929 10 of Americans have some hold in the New York Stock Exchange Businesses would invest in stock rather than in capital because the stock market was so profitable that getting your money back plus more was pretty easy The average American is not buying the stock with money that they necessarily have and getting loans was a really popular way to buy stock However this means that there is more money invested in the stock market than there is in circulation o Overproduction Overproduction of pretty much everything because business was booming and consumers were buying and were reaching market saturation Market saturation is when you make so much product that everyone has bought your product but you keep making that product Farm products will also get overproduced and even countries overseas are not yet recovered market and are overproducing Before the crash occurs prices of goods are going to drop dramatically due to the market saturation Even though prices dropped the cost to produce those goods stayed the same and businesses were not making as much of a profit o Farming debt There is a lot of technological development and the technology is pretty expensive and take out a lot of debt The quality of soil esp in the Midwest will be pretty poor because the materials in the soil have been exhausted and are not being replenished There is less demand for raw products and there are more foreign competitors so the price of farmed products will drop o Consumer debt Money is cheap at this time and this is the era of the installment plan and people will be using credit to make purchases like never before There will be a lot of outstanding debt by 1929 and people are getting in way over their heads in debt By 1929 there was 8 5 million in debt and there was more money in debt than in circulation o Loose monetary policy At the end of WWI the US has over half of the world s gold and decided to monetize on this gold and creates inflation all over the world Because we devalued their money they will have a lot of trouble buying our products and do not buy US products because they are too expensive Black Tuesday on Oct 29th 1929 o It had faltered in September o On Oct 24th the NYSE lost 11 of its value Really bad news because this is a lot to lose in one day and people are scrambling Private individuals are making big investments in the market to show consumers that they have confidence in the market and will temporarily solve the market depreciation o On Oct 28th MYSE loses an additional 13 o Finally on Oct 29th it lost another 12 The private rich individuals are able to get out of the market pretty early but it s the average American that are having a hard time getting out o The market lost 30 billion and 25 of its value in 2 days 397 billion in 2012 dollars What followed o Banks collapsed The banks will end up failing because they had put too much money in the stock market and will close their doors When the banks close their doors people lose their money because there is no such thing as federal deposit insurance corporation FDIC People will run to the bank to withdraw all of their money before the doors close so the banks lost their investments and all of their deposits so it is inevitable that the bank fails The banks will call on people to repay their loans but most of the money is imaginary and there is not enough money in circulation to pay back the debts that have accumulated o Smoot Hawley tariff of 1930 This will be the highest tariff in US history and will be passed after the stock market crash of 1929 and will destroy the economy even more We had made the mistake of devaluing the world s economy and exports will decrease by 61 When you put a tariff in place other countries will put tariffs against your products and at a time when trade was needed the most the tariff will kill trade Businesses will be forced to lay off individuals or will close all together The Dawes plan was a plan to get Germany s economy back on its feet after the war and the US will loan money to the government o This will collapse after the stock market crash and this will not allow the Germans to pay back France and England o They will try to pay back the loans by printing more money and will cause hyperinflation Economic downturn is spread throughout the rest of the world and the depression is basically a world depression o The dust bowl This was caused by the soil erosion mentioned previously and the top soil of the soil will turn into dust and the crops will be blown away by wind This will be accompanied by record droughts and will really hinder the agricultural market and people will move to California to find more jobs which there really aren t Hoover s response o Local public works projects Hoover dam big public works project but is does not have a uniform approach to it and will not have nation wide impact o Private investment in the economy o Tariff Hoover is the one who would sign the Smoot Hawley tariff even though he got a petition from economists of the time not to sign the tariff o But he would not run a deficit A firm believer in a balanced budget and this is bad because the government is the only one with money but refuses to use the money to help debt This goes hand in hand with his idea about the government not interfering in the market In this time the unemployment rate is 25 meaning one in four people will be unemployed In 1929 he would force repatriation of Mexicans and Mexican Americans to Mexico because he believed that it was these people who were taking away jobs from Americans and this will not really help the economy too much Coping o War of the worlds 1938 Outlets become extremely important in the time of depression and radio shows become really popular This is a radio show and they report fictional facts as if they are really happening and will cause a somewhat panic state in individuals
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