An Overview of the Great Depression

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An Overview of the Great Depression
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NARROW FLAPPER ANKLE PENCIL JIVE
MINI MAXI RAHRAH MICRO
KNEE MAXI
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What makes a Depression Great?

• Recession When your neighbor loses his or her
  job.
• Depression When you lose your job.

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Why study the Great Depression?

• Worst economic disaster of the 20th century.
• Cause or causes are still debated.
• A defining event, especially for the governments
  involvement in the economy.
• Useful for learning important macroeconomic
  concepts.
• Led to the conditions that allowed Hitler to gain
  power in the economically desperate Deutschland.

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Some Concepts

• Gross Domestic Product (GDP) Comprehensive
  measure of the nations output of final goods and
  services.
• Real GDP GDP measured at a fixed price level
  (i.e., inflation adjusted).
• Nominal GDP GDP measured at current prices.
• Recession Sustained decline in real GDP
  (approximately two quarters).
• Depression Very severe recession.

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More Concepts

• Inflation A sustained increase in the general
  price level (often calculated in terms of the
  Consumer Price Index (CPI)).
• Deflation A sustained decrease in the general
  price level.
• Money Stock The stock of assets that serve as
  media of exchange (e.g., coin, currency, checking
  accounts).
• Real Interest Rate Measure of the cost of
  borrowing adjusted for inflation/deflation.

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How Great was the Great Depression?

• Real output (GDP) fell 29 from 1929 to 1933.
• Unemployment increased to 25 of labor force.
• Consumer prices fell 25 wholesale prices 32.
• Some 7000 banks failed when people pulled their
  money out and companies went bankrupt and did not
  pay back loans.

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Why Did It Happen? Some Suggested Causes

• The stock market crash end of the party
• YouTube - 1929 Wall Street Stock Market Crash
• YouTube - The Great Depression (Britannica.com)
• YouTube - The Great Dust Storms - a Ken Burns
  style video
• Bell Aliant Learning Centre GREAT DEPRESSION PTS
  1 AND 2

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Stock Market Boom and Bust
SP Composite Index
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Why Did It Happen? Some Suggested Causes

• The stock market crash end of the party
  overinflated stock value bubble burst
• Collapse of world trade globalization in
  reverse. Countries tried to protect their own
  industries and stopped trading with each other.
  This constriction of international trade made the
  depression worse. PROTECTIONISM

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Why Did It Happen? Some Suggested Causes

• The stock market crash end of the party
• Collapse of world trade globalization in
  reverse
• Monetary collapse- THE VALUE OF CURRENCY
  DECREASED (WORST CASE GERMANY)

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Bank Failures

• 7000 U.S. banks failed -- many during panics
• Number of banks fell from 25,000 in 1929 to
  15,000 by 1934
• Possible Channels
• Loss of deposits ? decline in expenditures
• Customer relationships broken ? harder to borrow
• Money supply contraction

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Commercial Bank Failures, 1920-2004
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Banking Panics

• Bank depositors lost confidence ? bank runs
• Banks lost gold, currency and other reserve
  assets
• Loss of reserves caused banks to reduce loans
  and deposits (causing money stock to fall)
• Contracting money stock reduced spending
• Reduced spending led to lay-offs (increased
  unemployment), falling prices (deflation) and
  lower output.

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The Feds Monetary Policy
THE U.S. Fed officials did not watch (or even
measure) the money supply. But, why didnt they
respond to bank panics? Most failed banks were
small, nonmember banks. Interest rates were
falling and few banks borrowed at the
discount window. CANADA DID NOT HAVE THE BANK OF
CANADA UNTIL AFTER THE DEPRESSION BOTH KING AND
LATER BENNETT were using Laissez Faire economic
policies that are against government intervention
in the economy. THIS CHANGED AFTER THIS EVENT
FOREVER!
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Nominal Interest Rate, 1922-33
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But Were Interest Rates Really Falling?

• Deflation caused the real interest rate (i.e.,
  the real cost of borrowing) to rise sharply
• ? Firms stopped investing in new buildings,
  equipment, etc.
• ? Bankruptcies increased as borrowers lacked the
  incomes to repay their debts.
• ? Banks failed because borrowers defaulted on
  their loans.

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Recovery

• Rapid money supply growth (end of banking panic,
  gold inflows)
• ? rising price level
• ? falling real interest rate
• ? and increased spending (MAINLY DUE TO
  World War Two putting everyone back to work
  making weapons for fighting Hitler)

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Recovery

• Rapid money supply growth (end of banking panics,
  gold inflows) ? rising price level, falling real
  interest rate and increased spending.
• FRANKLIN DELANO ROOSEVELT (FDR) and the New Deal
• Restored confidence in banking system (FDIC)
• Early years marked by regulation/reform, little
  new spending (alphabet programs, e.g., NRA, WPA,
  PWA, CCC, etc.). All were forms of Keynesian
  Economics where governments run deficits in bad
  times and pay them off in good times to prevent
  total economic collapse (this is why GM and
  Chrysler were bailed out of bankruptcy by Canada
  and U.S. governments in 2008 and why there are no
  more Saturns, Pontiacs or Oldsmobiles).
• Later years saw increased spending on huge
  GOVERNMENT projects that put people back to work
  like the Hoover Dam near Las Vegas and paid
  artists to create public art
• THE BEGINNING OF STIMULUS SPENDING BY GOVTS TO
  GET THEIR COUNTRY WORKING AGAIN. (2008-11
  ECONOMIC ACTION PLAN)
• Another way to address a recession by government
  is called AUSTERITY MEASURES (EXTREME CUTS TO
  GOVT SPENDING-VERY HARSH)

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Recovery

• Rapid money supply growth (end of banking panics,
  gold inflows) ? rising price level, falling real
  interest rate and increased spending.
• FDR and the New Deal?
• Restored confidence in banking system (FDIC)
• Early years marked by regulation/reform, little
  new spending (alphabet programs, e.g., NRA, WPA,
  PWA, CCC, etc.)
• Later years saw increased spending
• World War II (when unemployment finally fell
  below 10 after a high of nearly 25
  officiallybut in some areas higher!)

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Could It Happen Again? It almost did in 2009

• The Depression may not have been a failure of
  capitalism or markets as a whole, but rather a
  failure of the Federal Reserve in the U.S. and
  the non-interventionist policies of King and
  Bennett in Canada
• Monetary policy should maintain price stability
  avoid deflation and inflation.
• The Fed and Bank of Canada should respond to
  financial crises that increase the demand for
  money or threaten to disrupt the payments system.
  They can raise or lower interest rates
  accordingly to speed up or slow down borrowing
  and spending.
• Canada under Chretien and Martin regulated the
  banks. Clinton and Bush let Wall Street have
  freedom that caused 2008 Meltdown. MUCH WORSE
  than CANADA. 39 DOLLAR ALBANY, NY HOTEL IN 2010
• 2009 GREAT RECESSION WAS CAUSED BY DEREGULATED
  BANKS IN THE USA

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The Great Depression
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1929-1939

• Stock market crash
• Didnt realize the effect it would have
• No money to replenish what was borrowed

Many found being broke humiliating.
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The Roaring 20s

• The Jazz Age! Good times!
• The new concept of credit
• People were buying
• Automobiles
• Appliances
• Clothes
• Fun times reigned
• Dancing
• Flappers
• Drinking

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Why was this bad?

• Credit system
• People didnt really have the money they were
  spending (like the housing crisis in U.S. in
  2008)
• WWI
• The U.S. was a major credit loaner to other
  nations in need
• Many of these nations could not pay us back

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The Stock Market

• People bought stocks on margins
• If a stock is 100 you can pay 10 now and the
  rest later when the stock rose
• Stocks fall
• Now the person has less than 100 and no money to
  pay back

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And then.

• With people panicking about their money investors
  tried to sell their stocks
• This leads to a huge decline in stocks
• Stocks were worthless now
• People who bought on margins now could not pay
• Investors were average people that were now broke

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President Hoover

• Herbert Hoover was president at the start
• Philosophy Well make it!
• What He Did Nothing
• The poor were looking for help and no ideas on
  how to correct or help were coming

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In CANADA

• Both Prime Ministers William Lyon MacKenzie-King
  and R.B. Bennett did not intervene and felt the
  economy would correct itselfit didnt.

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What about the people?

• Farmers were already feeling the effects
• Prices of crops went down
• Many farms foreclosed
• People could not afford luxuries
• Factories shut down
• Businesses went out
• Banks could not pay out money
• People could not pay their taxes
• Schools shut down due to lack of funds
• Many families became homeless and had to live in
  shantytowns. Some men went to work camps where
  Communist organizers saw success (like Slim Evans
  and the Trek from B.C. to Ottawa on trains).
• Starved people were found to have grass and rocks
  in their stomachs.

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Many waited in unemployment lines hoping for a
job.
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People in cities would wait in line for bread to
bring to their family.
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Some families were forced to relocate because
they had no money such as the Okies who went to
California with all of their belongings piled on
trucks looking to pick fruit for cash (The
Grapes of Wrath by Steinbeck).and the Hobos who
rode the rails35
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• Critics' Picks - Critics' Picks 'The Grapes of
  Wrath' -- NYTimes.com/Video YouTube
• Bruce Springsteen - The Ghost of Tom Joad (Great
  Depression) - YouTube

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Hoovervilles

• Some families were forced to live in shanty towns
• A grouping of shacks and tents in vacant lots
• They were referred to as Hooverville because of
  President Hoovers lack of help during the
  depression.

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Hooverville
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BENNETT BUGGIES
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Out of the Dust
The South and the Dust Bowl
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A drought on the Prairies and in the South led to
dust storms that destroyed crops.
The Dust Bowl
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• Crops turned to dustNo food to be sent out
• Homes buried
• Fields blown away
• South in state of emergency
• Dust Bowl the 1 weather crisis of the 20th
  century

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Two Families During the Depression
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A Farm Foreclosure
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Some families tried to make money by selling
useful crafts like baskets.
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FDR

• When he was inaugurated unemployment had
  increased by 7 million.
• Poor sections (like Harlem) had 50 of the pop.
  unemployed
• Instated the New Deal
• Yea! Frankie!

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• People everywhere were effected by the depression
• It wasnt till President Roosevelt took over and
  tried to put the economy back together that
  people even saw a glimmer of hope

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To Kill a Mockingbird
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Major Historical Happenings...

• Jim Crow Laws
• Scottsboro Trials
• Recovering from the Great Depression
• Racial Injustice
• Poor South

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Jim Crow Laws

• After the American Civil War most states in the
  South passed anti-African American legislation.
  These became known as Jim Crow laws.
• These laws included segregation in
• Schools -- Hospitals
• Theaters -- Water fountains
• Restaurants
• Hotels
• Public transportation
• Some states forbid inter-racial marriages

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• These laws were instituted in 1896 and were not
  abolished till the late 1950s (even then still
  not completely).

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Scottsboro Boys Trial

• 9 young African-American men (13-20) accused of
  raping 2 white girls in 1931
• Immediately sentenced to death
• Trials went on for nearly 15 years before all the
  men were dismissed

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• Started on a train bound for Memphis
• Several white men boarded and picked a fight with
  the black men
• Whites were forced off train by the 12 black men.
  The white men reported the the black men had
  raped two white girls on the train to authorities
• They were immediately arrested and tried in front
  of an all-white jury.

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The trials caused a huge uproar amongst the black
community.
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Harper Lee
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• Wrote To Kill a Mockingbird in 1960
• Based the story on her life growing up in
  Monroeville, Alabama
• TKAM was the only novel she ever wrote

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• The character of Dill, Scout and Jems playmate
  in the novel was based upon Lees actual
  neighbor, Truman Capote
• Capote is famous for amongst other things, In
  Cold Blood and Breakfast at Tiffanys.
• It has been said that he gave Lee Mockingbird as
  a gift.

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• In 1962 the novel was turned into a film starring
  Gregory Peck.
• It received a humanitarian award and several
  Academy Award nominations

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What really ended the Depression
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RESULTS

• After the 1930s. an unregulated laisse-faire free
  market was seen to be too risky. After the 1940s,
  Keynesian Economics policies (run deficits in bad
  times, pay off in good times like 2009-2011) were
  followed Government regulates the economy
  through the Bank of Canada and raises and lowers
  interest rate to stimulate (lower) or slow the
  economy (raise to fight inflation). Also stimulus
  spending by government during hard times create
  work and build needed infrastructure.
• Introduction of new polices like EI, Social
  Assistance (Welfare), Old Age pensions and,
  later, Medicare (1960s). THE BIRTH OF THE WELFARE
  STATE (or Nanny State as right wing detractors
  call it)

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What are the main stock indexes?

• Fun trivia journalist Charles Dow created the
  first index more than 100 years ago. In 1896, Dow
  averaged the stock prices of the top 12
  publicly-traded companies. (He added their stock
  prices together and divided the total by the
  number of stocks.) By doing this, he found that
  he could trace the movement of the overall
  market, including the general (average) movement
  of stocks that werent included in the financial
  calculation.
• So what are the most popular market indexes?
• The SP 500 This index tracks 500 large U.S.
  companies across a wide span of industries and
  sectors. The stocks in the SP 500 represent
  roughly 70 percent of all the stocks that are
  publicly traded. SP stands for Standards and
  Poors, the name of a market research firm.
• Companies CAN be listed in more than one index.
  Some of the largest companies within the SP 500
  are also in the Dow Jones Industrial Average.
• The Dow Jones Industrial Average Named after
  Charles Dow, this index tracks the 30 largest
  U.S. companies. This means it represents
  large-cap companies, which is the industry term
  for very big companies like Johnson Johnson,
  McDonalds and Coca-Cola. Although the companies
  within the Dow Jones represent only about 25
  percent of all stocks, the DJIA is widely
  accepted as the leading indicator of market
  health.

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• NYSE Composite IndexThe NYSE Composite Index is
  designed to measure the performance of all common
  stocks listed on the NYSE, including ADRs, REITs
  and tracking stocks. In January 2003 the NYSE
  reintroduced the NYSE Composite Index under a new
  methodology that is fully transparent and
  rule-based. It is a measure of the changes in
  aggregate market value of all NYSE-listed common
  stocks, adjusted to eliminate the effects of
  capitalization changes, new listings and
  delistings.
• NYSE AMEX CompositeThe NYSE AMEX Composite is
  made up of stocks that represent the NYSE Amex
  equities market. The Index is a market
  capitalization weighted index, so the weight of
  each stock depends on the price of the shares and
  how many are outstanding. It was previously known
  as the American Stock Exchange (Amex) Composite
  Index.
• Dow Jones Industrial AverageThe Dow Jones
  Industrial Average is a price weighted index that
  represents large and well-known U.S. companies.
  The index covers all industries with the
  exception of Transportation and Utilities. While
  stock selection is not governed by quantitative
  rules, a stock typically is added only if the
  company has an excellent reputation, demonstrates
  sustained growth and is of interest to a large
  number of investors.
• SP 500 IndexThe SP 500 focuses on the
  large-cap sector of the market however, since it
  includes a significant portion of the total value
  of the market, it also represents the market.
  Companies in the SP 500 are considered leading
  companies in leading industries.
• ALSO, THE TSX, THE NIKKEI, FTSE

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• (1/2) Canada Between Two World Wars - Part 1
  YouTube
• (2/2) Canada Between Two World Wars - Part 2 -
  YouTube

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