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Great depression_ICICI BLP, NIIT
The document provides an overview of the causes and impact of the Great Depression, as well as reforms implemented in response. It discusses how the stock market crash of 1929 led to a banking panic and monetary contraction as people withdrew money from banks. This caused a reduction in consumer spending and a vicious cycle of unemployment. The Smoot-Hawley Tariff and adherence to the gold standard exacerbated the situation. The Depression had severe effects on industry, workers, and families. Unemployment rose to 25% and people lost homes and jobs. In response, President Roosevelt was elected and implemented a "New Deal" including programs to fix banks, provide unemployment and recovery plans, and prevent future crises through new agencies and regulations.
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Great depression_ICICI BLP, NIIT
- 1. THE GREAT DEPRESSION ArpitaUpadhyaya Aravindhan Gopalan Abinash Biswal Dayanidhi Kar
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- 3. Economic Depression –What is it? • Severe and prolonged downturn in economic activity • Recession that lasts two or more years. • Characterized by substantial increases in unemployment, drop in available credit, diminishing output, bankruptcies and sovereign debt defaults, reduced trade and commerce, sustained volatility in currency values • Consumer confidence and investments decrease, causing the economy to shut down 3
- 4. Overview – TheGreat Depression • Worldwide economic downturn that began in 1929 and lasted until about 1939 • Ranks second only to the Civil War as the gravest crisis in American history • Longest and most severe depression ever experienced by the industrialized Western world • Reduction in consumer spending, drastic declines in output, severe unemployment, and acute deflation, catastrophic poverty 4
- 5. CAUSES OF THEGREAT DEPRESSION
- 6. THE STOCK MARKETCRASH • Speculation: Too many Americans were engaged in speculation – buying stocks & bonds hoping for a quick profit • Margin: Americans were buying “on margin” – paying a small percentage of a stock’s price as a down payment and borrowing the rest
- 7. THE STOCK MARKETCRASH • Occurred on the 24th and 29th of Oct – called Black Thursday and Black Tuesday • On Oct 24th, the Dow Jones industrial average hit a low of 299.5, down from a high of 381.2 from the previous month – a 21% decline • Triggered a selling panic • 9% drop on trading that was approx three times the normal daily volume for the first nine months of the year
- 8. THE STOCK MARKETCRASH • 16.4 million shares were sold that day – prices plummeted • People who had bought on margin (credit) were stuck with huge debts • Stocks lost nearly 90 percent of their value • Stockholders had lost more than $40 billion dollars
- 10. BANKING PANIC ANDMONETARY CONTRACTION • After the crash, many Americans panicked and withdrew their money from banks • Banks had invested in the Stock Market and lost money • People lost money as bank deposits were uninsured • Banks hesitated in giving new loans – aggravated the depression
- 11. BANKING PANIC ANDMONETARY CONTRACTION • In 1929- 600 banks fail • By 1933 – 11,000 of the 25,000 banks nationwide had collapsed • culminated with the national “bank holiday” being declared which closed all banks
- 12. REDUCTION IN CONSUMER SPENDING •By late 1920s, American consumers were buying less • Rising prices, stagnant wages and overbuying on credit were to blame • People did not have the money to buy goods factories produced • Vicious circle of unemployment and dip in consumer spending continued
- 13. SMOOT HAWLEY TARIFF •American economic policy with Europe to help protect American firms • Protectionist Trade Policiescharged a high tax for imports • Less trade between America and Foreign countries leading to economic retaliation
- 14. THE GOLD STANDARD •Limited US Monetary policy • Imbalances in trade flows gave rise to international gold flows • Interest rates hiked substantially to stem gold outflow • High interest rates depressed spending and led to high unemployment
- 15. IMPACT OF THEGREAT DEPRESSION
- 16. EFFECTS ON INDUSTRY •GNP – $104 billion in 1929 to $56 billion in 1933 • Total national income – fell by Over 50% • Corporate profits - from $10 billion to $1 billon • Business failures: 100,000 between 1929 and 1933
- 17. Decline in Industrialproduction in various countries 17
- 18. EFFECT ON WORKERSAND FAMILY • Unemployment ~25% in 1932? – underemployment – patterns of reemployment and layoffs • “Depression mentality” Men Lined Up at the New York City Employment Bureau, 1932
- 19. EFFECT ON WORKERSAND FAMILY A. Jobless / Homeless • 1930-1932 – Jobless goes from 4 to 12 million • Houses are lost, people become homeless B. Hatred for President Hoover • Say’s it’s not Government’s job to fix the Poor • People name Poor Places after Hoover – Hooverville
- 21. SO, IN ANUTSHELL Great Crash World Payments Investors Investors lose millions. Businesses lose profits. Businesses and Workers Consumer spending drops. Workers are laid off. Businesses cut investment and production Some fail. Overall U.S. production plummets. Banks Businesses and workers cannot repay bank loans. Savings accounts are wiped out. Allies cannot pay debts to United States. Banks run out of money and Europeans fail. cannot afford American Bank goods. runs occur. U.S. investors have little or no money to invest. U.S. investments in Germany decline. German war payments to Allies fall off.
- 22. Reforms Implemented • A.President Roosevelt Elected (1932) – Brain Trust- Used professors and experts to develop programs to fight the depression – Promised “New Deal” for Americans • Fixing Banks 1. Declared a banking crisis a. Closed ALL banks/ 4 day “Bank Holiday” b. Emergency Banking Relief Act- Passed by allowing only sound banks to reopen. 2. Fireside Chat- told Americans by radio that the good banks were safer than $$ in mattress.
- 23. Reforms Implemented A NEWDEAL!!! a. Unemployment *CCC- Civilian Conservation Corp *PWA- Public Works Administration *TVA- Tennessee Valley Authority b. Recovery Plans *NRA- National Recovery Act *AAA- Agricultural Adjustment Admin. c. Prevention Reforms *FDIC- Federal Deposit Insurance Corporation *SEC- Securities and Exchange Commision
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- 25. Reforms Implemented ResultsDid NOTend the Depression 1. Most of the Businessmen disliked New Deal 2. Gave country confidence a. Ended banking crisis b. Helped with some Jobs c. Infrastructure (buildings, schools, bridges, electricity, artwork)
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Editor's Notes
- #8 The Stock Market crash signaled the beginning of the Great Depression. The crash alone did not cause the Great Depression, but it hastened its arrival.On September 3, 1929, the Dow Jones Industrial Average reached a record high of 381.2. At the end of the market day on Thursday, October 24, the market was at 299.5 — a 21 percent decline from the high. On this day the market fell 33 points — a drop of 9 percent — on trading that was approximately three times the normal daily volume for the first nine months of the year. By all accounts, there was a selling panic.
- #11 A banking panic arises when many depositors lose confidence in the solvency of banks and simultaneously demand their deposits bepaid to them in cash. Banks, which typically hold only a fraction of deposits as cash reserves,must liquidate loans in order to raise the required cash. . This process of hasty liquidation can cause even a previously solvent bank to fail.
- #12 The few surviving banks were very concerned with being able to continue. Since the economy was in such a bad economic situation many banks hesitated creating new loans whether it was home or personal loans. This made the situation more severe because it led to less and less expenditures.The final wave of panics continued through the winter of 1933 and culminated with the national “bank holiday” declared by President Franklin Roosevelt on March 6, 1933. The bank holiday closed all banks, permitting them to reopen only after being deemed solvent by government inspectors.The panics took a severe toll on the American banking system.
- #13 Due to the stock market crash and peoples fears of future economic problems many people stop purchasing items. So the decreased production then led to the reduction of the workforce. As people continued to become unemployed they were not able to keep up with paying for items. So inventory increased in many businesses and continued to accumulate in time. The unemployment rate rose above 25% which in turn meant even less spending to help the economy
- #14 Smoot-Hawley Tariff in 1930 to help protect American companies. This “charged a high tax for imports thereby leading to less trade between America and foreign countries along with some economic retaliation
- #15 Under the gold standard, imbalances in trade or asset flows gave rise to international gold flows. For example, in the mid-1920s intense international demand for American assets such as stocks and bonds brought large inflows of gold to the United States.Once the U.S. economy began to contract severely, the tendency for gold to flow out of other countries and toward the United States intensified. This took place because deflation in theUnited States made American goods particularly desirable to foreigners, while low income reduced American demand for foreign products. To counteract the resulting tendency toward an American trade surplus and foreign gold outflows, central banks throughout the world raised interest rates. Maintaining the international gold standard, in essence, required a massive monetary contraction throughout the world to match the one occurring in the United States. The result was a decline in output and prices in countries throughout the world that also nearly matched the downturn in the United States.
- #24 The New Deal programs were known as the three "Rs"; Roosevelt believed that together Relief, Reform, and Recovery could bring economic stability to the nation. Reform programs focused specifically on methods for ensuring that depressions like that in the 1930s would never affect the American public again. These programs, including the Securities and Exchange Commission, Federal Deposit Insurance Corporation, and Social Security Administration tended to focus on the management of money from the stock market and banking sector to the individual citizen.The Relief programs, were implemented to immediately stop the continued economic freefall. These included the Emergency Banking Act, which ensured that only solvent banks remained open, and bank holidays that would close financial institutions when a wave of financial panic occurred. In addition, the Federal Emergency Relief Act (FERA), the Civil Works Administration (CWA), and the Civilian Conservation Corps (CCC) provided immediate support in the form of cash payments and temporary employment. And, in doing so, helped to develop and repair the American transportation infrastructure, and literally construct the foundations of National Parks across the US.While there were many relief programs aimed to put Americans back to work, the Civilian Conservation Corps (CCC) had the unique goal of preserving the country’s natural resources through the establishment of conservation jobs. This meant that more than three million men between 1933 and 1942 went to work in the parks and forests performing tasks such as “planting trees, building flood barriers, fighting fires, and maintaining roads and trails.” One of the legacies of the CCC was that over three billion trees were planted in just nine years.The CCC not only showed that the federal government valued protecting the environment, but also that many government agencies could join together in the face of national struggle to create a stronger nation. The Department of Labor recruited young men, the War Department trained them, and the Department of Agriculture decided on and managed the specific jobs of the workers. The work of these young men would become the foundations of the National ParksRoosevelt realized that most of the federal government’s relief efforts had never been successful because they often got stuck in political wrangling. To prevent these problems, Roosevelt told Hopkins to focus on action rather than the complications of politics.The three goals of the Federal Emergency Relief Act (FERA) were (1) to be effective, (2) provide work for employable people on the relief rolls, and (3) to have a diverse variety of relief programs. FERA provided grants from the federal government to state governments for a variety of projects in fields such as agriculture, the arts, construction and education. Many people who were receiving relief aid were highly trained, skilled workers. The hope was that by providing many different types of jobs and salaries that were similar to workers’ previous jobs the whole country would benefit.Even with the establishment of the Federal Emergency Relief Act (FERA), there were still more problems that needed solutions, and quickly! High unemployment remained and there continued to be worries about the public’s welfare. The Civil Works Administration (CWA) was started as a subdivision of FERA with the goal of providing a short-term solution to get people back to work. The projects under CWA were more short term and aimed at unskilled laborers. A large amount of men and women were put to work in the winter of 1933 and 1934 as a result of this initiative. For example, roads were improved, bridges were constructed, airports were upgraded, and pipelines were repair
- #26 No the New Deal did not end the Great Depression. Most historians will tell you it was a success and some economists will say the same.Depending on whether you include people who worked in WAP (govt. program) unemployment dropped from 25% to around 20%. Then, as now, many people called FDR a socialist and similar things because of all the G (government spending). As we entered WWII unemployment dropped significantly but this has nothing to do with the ND. As people left for military duty, jobs opened up thus leading to the fall. Also, FDR ended Prohibition during this time.After WWII a lot of govt. regulations were laxed and businesses were able to operate freely leading to the actual and sustained recovery. Hindsight is 20/20, but had the US abandoned the gold standard earlier then 1933 then the Great Depression would not have been nearly as worse. This is because the Fed would have been able to manipulate the money supply much much easier.