The USA: from the Roaring Twenties to the Great Depression

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The "Roaring Twenties" period in the USA, the causes of the 1929 crash, the Great Depression and the economic decisions to face the crisis.

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The USA: from the Roaring Twenties to the Great Depression

  1. 1. U.S.A: FROM THEU.S.A: FROM THE ROARING 20s TO THEROARING 20s TO THE GREAT DEPRESSIONGREAT DEPRESSION
  2. 2. FIRST WORLD INDUSTRIAL POWER - During WW1 the USA supplied the belligerent countries with raw materials, industrial products and weapons - The European countries owed a lot of money to the USA (war loans) - Intact productive system after the war. - Small human losses with respect to other countries - Owners of half of the world gold reserves. - The dollar became the predominant currency in international trade. COUNTRIES % USA 45% USSR 5% FRANCE 7% UNITED KINGDOM 9% GERMANY 12% OTHER COUNTRIES 23% WORLD INDUSTRIAL PRODUCTION IN 1929
  3. 3. PROSPERITY AND CONSUMER SOCIETY PERCENTAGE OF HOUSES WITH ELECTRIC APPLIANCES Growth of industrial production Growth of consumption, stimulated by: - Payment in instalments - Banking loans 1912 1932 IRONS 0 65 RADIOS 0 65 VACCUUM CLEANERS 0 30 WASHING MACHINES 0 27 TOASTERS 0 27 COFFEE MAKERS 0 19 FRIGIDAIRES 0 12
  4. 4. AMERICAN WAY OF LIFE ARRIVAL OF IMMIGRANTS TO ELLIS ISLAND, 1920s The USA became a dream for thousands of immigrants of all over the world.
  5. 5. THE OTHER FACE OF PROSPERITY
  6. 6. The prohibition of producing, selling and consuming alcoholic drinks contributed to the extraordinary development of the mafia AL CAPONE SPEAKEASY, ILLEGAL BAR
  7. 7. Although slavery had been abolished after the Civil War (1861- 1865), many black people continued to be discriminated and they were hounded in several states by the Ku Klux Klan, a racist organization.
  8. 8. INVESTMENT EUPHORIA AND SPECULATION As getting cheap loans was very easy, many people got into debts to buy houses or stocks in the Stock Market: - Real estate bubble: a lot of houses were built and easily sold, although prices increased due to the high demand. - Stock Market bubble: many people invested money without any knowledge about economics. Stocks prices increased constantly due to the big demand.
  9. 9. SYMPTOMS OF CRISIS - High debts to keep high levels of production and consumption - When the European countries started recovering, the USA producers (farms and factories) started having difficulties to sell their products and stocks started accumulating. CASH-FLOW PROBLEMS OVERPRODUCTION - No correspondence between the real economic situation of the companies and the value of their stocks in the Stock Exchange Market STOCK EXCHANGE BUBBLE
  10. 10. NEED FOR MONEY TO INCREASE PRODUCTION AND CONSUMPTION BANKS GAVE CHEAP CREDITS WITHOUT GUARANTEE A LOT OF MONEY AVAILABLE AND FACILITIES TO ACCESS TO CREDIT AND PAYMENT IN INSTALMENTS REAL ESTATE BUBBLE: HIGH DEMAND FOR HOUSES AND APARTMENTS FINANCIAL BUBBLE: MANY PEOPLE WITHOUT ECONOMY KNOWLEDGE BOUGHT STOCKS DEMAND FOR ALL TYPE OF PRODUCTS: CONSUMERISM MANY PEOPLE GOT INTO DEBT INDUSTRIES AND FARMERS GOT CREDITS TO ENLARGE THEIR BUSINESSES
  11. 11. EUROPE´S RECOVERY LESS DEMAND FOR THE USA PRODUCTS OVERPRODUCTION CRISIS INDUSTRIES AND FARMERS COULDN´T GIVE THE CREDITS BACK WORKERS FIRED UNEMPLOYMENT INCREASED FARM FORECLOSURES STOCK INVESTORS TRIED TO GET CASH SELLING THEIR STOCKS WALL STREET STOCK EXCHANGE MARKET CRASH BANKS WENT BANKRUPT LESS CREDIT LESS EXPENSE ECONOMY CONTRACTED
  12. 12. BEGINNING OF THE CRISIS: OCTOBER 1929 CRASH 24th October 1929: Black Thursday - Massive sale of stocks in Wall Street Stock Exchange Market - The price of the stocks fell down, prices shrunk and investors got ruined STOCKHOLDERS PANIC
  13. 13. EVOLUTION OF THE U.S STOCK MARKET BETWEEN 1927-1933 From euphoria to the crash and later to the Great Depression
  14. 14. EXTENSION OF THE CRISIS - Many banks went bankrupt, because they couldn´t recover the loans they had given - Consumption reduced. This made overproduction crisis more serious: - Farmers were ruined. Many lost their farms and migrated to cities in search of job. - Many industrial workers lost their jobs: unemployment and poverty increased. - Deflation: as there were not buyers for the products, prices decreased and so did the profits of producers. AMERICAN UNION BANK BANKRUPTCY
  15. 15. FARMERS RUINED
  16. 16. UNEMPLOYMENT HOOVERVILLES, SHANTY TOWNS AT CENTRAL PARK, NEW YORK
  17. 17. UNEMPLOYMENT RATE,1922-1939 (% of the labour force) 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 0 5 10 15 20 25 8 4 6 4.2 2 4.1 4.1 3 9 17 23 25 22 19.5 17 14 19 17
  18. 18. THE GREAT DEPRESSION The crisis became more serious due to: - Economic liberalism orthodoxy, opposed to the intervention of the State in economy. - Deflationist policy: the attempt of keeping low prices in order to recover consumption made things even worse. - Protectionism: the US increased tariffs to protect their industry and international trade contracted - As the USA was the main Europe´s creditor, when they started repatriating capital the crisis quickly extended to Europe. HERBERT HOOVER PRESIDENT OF THE USA FROM 1929 TO 1933
  19. 19. PROPOSALS TO SOLVE THE CRISIS John Maynard Keynes, a British economist, proposed different solutions: - The State had to intervene in economy and increase public expenses, even if this meant increasing the State deficit: - Investment in public works to create jobs and reduce unemployment - stimulation of production and consumption and reduction of stocks.
  20. 20. F.D. ROOSEVELT AND THE NEW DEAL In November 1932 the Democrat Franklin D. Roosevelt won the elections and launched an economic program based on Keynes´ ideas: NEW DEAL F.D.Roosevelt to Hoover: “Just leave them, Herb. I´ll do it after March 4th , Washington Evening Standard, 1932)
  21. 21. Roosevelt´s government launched some emergency laws to reactivate economy: - relief decisions - economic legislation - social legislation These decisions were known as the Three R Program: REFORM, RELIEF, RECOVERY
  22. 22. DECISIONS TO REACTIVATE ECONOMY - Subsidies for farmers to destroy their stocks and recover prices. - Minimum prices, in order to fight deflation. - Creation of the Public Works Administration, to build big infrastructures with public money and create jobs. DESTRUCTION OF STOCKS FARM RELIEF PLAN
  23. 23. PUBLIC JOBS CREATED TO REDUCE UNEMPLOYMENT NEEDY FAMILY PROGRAM (distributed surplus farm products to poor families)
  24. 24. -Social Security Act: pensions for retired workers and assistance for orphans and the disabled. It also created unemployment benefits. - National Labour Relations Act, which gave the unions the right to organize and represent workers in collective bargaining. - National minimum salary - Child labour was abolished SOCIAL LEGISLATION
  25. 25. FINANCIAL LEGISLATION - Banking reform: strict control of banks in order to avoid another bankrupt and government help in exchange for cheap credits to recover investment. -Creation of the SEC (Securities and Exchange Commission), to supervise the Stock Exchange Market and protect investors THE FIRST SEC
  26. 26. New Deal Program What It Did Category Federal Emergency Relief Administration Sent millions of dollars to states to use in direct relief payments and food for the unemployed. Relief Civilian Conservation Corps (CCC) Created jobs for over two million young unmarried men in conservation work and parks. Relief Agriculture Adjustment Act (AAA) Paid farmers to reduce the amount of crops they planted, in order to cut excess production. Recovery Federal Deposit Insurance Corporation (FDIC) Protected people’s bank deposits, thus eliminating the problem of “bank runs” that were a serious problem in the early 1930s. Reform National Recovery Administration (NRA) Set up voluntary agreements among businesses to cut excess production. The agreements covered production, prices, wages, and hours of work. Recovery; Reform Tennessee Valley Authority (TVA) Built hydroelectric power plants and flood control dams in seven states in the Tennessee River region. Recover; Relief Securities and Exchange Commission (SEC) Created to supervise the stock market and protect investors from dishonest practices. Reform Public Works Administration (PWA) and the Works Progress Administration (WPA) Created jobs for millions of unemployed people constructing roads, hospitals, post offices, parks, and many other projects. The WPA also included a program that hired out-of-work artists, photographers, actors, and writers for a wide range of artistic and educational projects. Relief; Recovery National Labor Relations Act Gave labor unions the right to organize and represent workers in collective bargaining. Reform Social Security Act Created a federal system of old-age pensions and assistance for orphans and the disabled. It also created an unemployment insurance system. Reform; Relief Fair Labor Standards Act Set up the first national minimum wage law and abolished child labor. Reform THE THREE R PROGRAM: REFORM, RELIEF, RECOVERY
  27. 27. Some of the New Deal decisions were declared unconstitutional by the Supreme Court of Justice. The Court argued that the Federal Government had imposed these decisions over the states.
  28. 28. All these decisions reduced unemployment and production recovered: MORE WORKERS However, the crisis didn´t finish until the outbreak of WW2 . MORE DEMAND MORE CONSUMPTION MORE PRODUCTION

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