What is buying on margin?
The pounding desire to strike it rich often led investors to ignore financial risks. As the market soared, people began buying on margin, a period of rising stock prices. More and more Americans put their money into stocks in an effort to get rich quick. By 1929, around 4 million Americans owned stocks.
President Hoover’s optimism
Herbert Hoover came to the attention to the Americans during World War 1, first as the coordinator of the Belgium relief program and then as head of the Food Administration. During the Harding and Coolidge administrations, Hoover served as the Sec. of Commerce. He stressed the importance of competition, but he also believed in voluntary cooperation between labor and management. American greatness showed itself when owners, workers, and gov officials converged on common goals. Hoover was a formidable presidential candidate in 1928.
Across the United States, investors raced to pull their money out of the stock market. On October 29, Black Tuesday, the bottom fell out. More than 16 million shares were sold as the stock market collapsed in the Great Crash. Billions of dollars were lost. Many spectators who bought on margin lost everything they had.
The Great Crash represented another hallmark of the nation’s business cycle, which explained the periodic growth and contraction of the economy. The Great Depression, a period lasting from 1929 to 1941 in which the economy faltered and unemployment soared. The crisis in confidence continued as frightened depositors feared for their money and tried to withdraw it from their backs. Another cause of many bank failures was misguided monetary policy. During the 1920s, the Federal Reserve, which regulates the amount of money in circulation, cut interest rates to stimulate economic growth. Businesses then closed and unemployment rose.
Smooth-Hayley Tariff Act
Hoping to reverse the downward slide, the government moved to protect American products from foreign competition. In June 1930, Congress passed this tariff, which raised prices on foreign imports to such a level that they could not compete in the American market. The tariff inspired European countries to retaliate and enact protective tariffs of their own. The tariff also added to the problems of the depression. At a time when American manufacturers and farms had a glut of unsold products, the international move toward high protective tariffs closed markets. This closure was not just harmful to American producers; it was equally disastrous to the global economy. The ripple effect caused by the tariff helped to destroy international trade.
As Americans lost their jobs, many ran out of money, were evicted from their homes, and ended up on the streets. Homeless people slept on park benches, in empty railway cars, or in cardboard boxes. Many grouped together in Hoovervilles, makeshift shantytowns of tents and shacks built on public land or vacant lots. Homeless people, some of whom had works as skilled carpenters before the crisis, cobbled houses together out of lumbar scraps, tar paper, tin and glass.
Causes of the bowl: Severe drought scorches the land. Farmers plow deep-rooted grasses to plant crops. Livestock overgraze the land. Windstorms blow the topsoil away. Most of the dust storms started in the southern Great Plains, especially in regions of Texas, Oklahoma, Kansas, New Mexico, and Colorado. Many farm families trapped in the Dust Bowl had no choice but to migrate out of the region. They had lost their farms to the banks. Dust storms had destroyed most remaining opportunities. They were low on everything except despair.
Although only some came from Oklahoma, Dust Bowl refugees were generally referred to as Okies, regardless of their states of origin. Okie families packed onto rickety trucks and headed toward any place where a job might be found. Agricultural collapse and the Dust Bowl forced many Americans to leave the Midwestern and southern regions where they were born.
Reconstruction Finance Corporation
Hoover decided to reverse course and use federal resources to battle the depression. Believing the economy suffered from a lack of credit, Hoover urged Congress to create the Reconstruction Finance Corporation (RFC). Passed in 1932, the RFC gave more than a billion dollars of government loans to railroads and large businesses. The act also lent money to banks so that they could extend more loans to struggling businesses.
Trickle-Down Economies (Hoover’s plan to recover)
Hoover believed that if the government lend money to bankers, they would lend it in turn to businesses. Companies would then hire workers, production and consumption would increase, and the depression would end. This theory, known as trickle-down economies, held that money poured into the top of the economic pyramid will trickle down to the base.
Despite the failings of the RFC, Hoover succeeded with one project that made a difference. During the 1920s, Secretary of Commerce Hoover had called for the construction of a dam on the CO River. By the time Hoover became President in 1929, Congress had approved the project as part of a massive public-works program. Workers broke ground on Boulder Dam (later renamed Hoover Dam) in 1930. Construction brought much-needed employment to the Southwest during the early 1930s.
Most Americans did not want a revolution, but many did desire substantial changes. In 1932, one such group arrived in Washington, DC., demanding a solution to their particular problem. From across the country came World War I veterans seeking the bonus Congress had promised them. They became known as the Bonus Army. In 1924, Congress had passed the Adjusted Compensation Act, which provided for a lump-sum payment to the veterans in 1945. But in 1931, many veteran groups began to call for an early payment of the bonus, arguing that out-of-work vets needed the money to support themselves. The House of Representatives agreed and passed a bill to provide early payment of the bonuses. However, the bill was defeated in the Senate.
Grapes of Wrath by John Steinbeck
Published during the depths of the depression, The Grapes of Wrath won the Pulitzer Prize in 1940. Steinbeck’s sympathetic portrayal of dispossessed Okies, along with his searing criticism of the rich and powerful who profited from their plight, caused an immediate sensation. The novel tells the story of the Joad family, hardly Dust Bowl farmers who are forced off their land by the bank. The Joads join the mass migration west, to the “promised land” of California. There, instead of opportunity, they find low wages, harsh conditions, discrimination- and finally, after years of drought, the cruel irony of a killing flood.
Analyze the causes of the Great Depression
Overproduction and underconsumption of agricultural crops. Uneven distribution of income. Gradual accumulation of consumer debt. Widespread stock market speculation.
Analyze the effects of the Great Depression
Banks and businesses fail. Unemployment soars. Personal incomes shrink. Countries enact high tariffs to protect their products from foreign competition; world trade declines. American loans to Europe dry up.
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