CHAPTER 14
THE GREAT DEPRESSION
-
CAUSES
o OVER SPECULATION
§ DEF – TRYING TO MAKE A QUICK
BUCK
o
BUYING ON MARGIN
§ DEF - THE % OF DOWN PAYMENT
NEEDED WHEN PURCHASING STOCK
· SET BY THE S.E.C.
-
STOCK VALUES
o
PAR VALUE – THE VALUE OF A STOCK WHEN IT IS FIRST ISSUED
o
MARKET VALUE – THE VALUE OF STOCK AS DETERMINED BY SUPPLY AND DEMAND
o
BOOK VALUE – THE VALUE OF STOCK IF A COMPANY LIQUIDATES ITS ASSETS
§ THE MOST IMPORTANT VALUE TO
BE CONSIDERED WHEN PURCHASING STOCK
o OVERVALUED
§ WHEN MARKET VALUE EXCEEDS
BOOK VALUE
§ TYPICALLY FOUND IN A “BULL
MARKET”
o UNDERVALUED
§ WHEN MARKET VALUE IS LESS
THAN BOOK VALUE
§ TYPICALLY FOUND IN A “BEAR
MARKET”
§ BEST TIME TO BUY STOCK
13/2
CAUSES OF THE DEPRESSION
-
UNDER CONSUMPTION COUPLED WITH OVERPRODUCTION
o
FALSE PROSPERITY
o
DEMAND DIDN’T KEEP UP WITH SUPPLY
o
VARIOUS INDUSTRIES WERE DEPRESSED
§ MINING, TEXTILES, STEEL,
AGRICULTURE
-
UNEQUAL DISTRIBUTION OF WEALTH
o
THOSE WHO HAD MONEY SPENT IT ON FRIVOLOUS THINGS AS OPPOSED TO BASIC
COMMODITIES
o
THOSE WHO WERE WITHOUT MONEY LOST PURCHASING POWER
-
OVER SPECULATION
o
EXCESSIVE BUYING ON MARGIN
-
INSUFFICIENT MONEY SUPPLY
o
THE FED TIGHTENED THE MONEY SUPPLY AS OPPOSED TO LOOSENING THE AMOUNT
OF AVAILABLE CREDIT
-
DECLINE IN FOREIGN TRADE
o
HIGH TARIFFS CAUSED RECIPROCATION BY OTHER COUNTRIES THAT CURTAILED THE
EXPORT BUSINESS
-
BANK FAILURES
o
BANKS BECAME INSOLVENT
o
BANKS OVEREXTENDED THEIR LOAN PORTFOLIOS WITH SPECULATIVE LENDING
o
RUN ON BANKS (PANIC)
§ THEY WERE UNABLE TO MEET THE
DEMAND OF DEPOSITORS
§ THE FDIC WAS NOT IN
EXISTENCE
· THIS INSURES BANK DEPOSITS
13/3
THE BUSINESS CYCLE
-
THE UPWARD AND DOWNWARD FLUCTUATIONS IN THE LEVEL OF BUSINESS ACTIVITY
-
PROSPERITY – A PERIOD OF INCREASED PRODUCTION
-
RECESSION DEPRESSION
o
A MODERATE DROP IN A
DRASTIC DROP IN
§ PRICES PRICES
§ PRODUCTION PRODUCTION
§ EMPLOYMENT EMPLOYMENT
-
RECOVERY
o
A PERIOD OF RISING PRODUCTIVITY
- HE WAS A PROPONENT OF LAISSEZ FAIRE CAPITALISM
o HE FELT THAT THE ECONOMY WOULD CORRECT ITSELF
-
HE CALLED FOR VOLUNTARY AND LOCAL ACTION TO RELIEVE THE HARDSHIPS OF
THE PEOPLE
-
HE ASKED BUSINESSES NOT TO CUT WAGES OR PRODUCTION
-
HE ASKED LOCAL GOVERNMENTS TO
-
FEDERAL HOME LOAN BANK ACT
o
LOWERED MORTGAGE RATES FOR HOMEOWNERS
o
ALLOWED FARMERS TO REFINANCE MORTGAGES
o
NOT SUCCESSFUL BECAUSE WHAT PEOPLE NEEDED WAS MONEY TO PAY ON THEIR
MORTGAGES
13/4
-
RECONSTRUCTION FINANCE CORPORATION
o
PROVIDED MONEY TO BANKS, INSURANCE COMPANIES, RAILROADS AND
MANUFACTURING TO CREATE JOBS WHICH IN TURN WOULD HELP THE UNEMPLOYED
§ SUPPLY SIDE ECONOMICS – THE TRICKLE DOWN THEORY
§ THIS DIDN’T WORK BECAUSE THE
MONEY WAS POCKETED – JOBS WERE NOT CREATED
-
EMERGENCY RELIEF ACT
o
INTENDED TO PROVIDE UNEMPLOYMENT RELIEF TO THE STATES - $300 MILLION
o
STATES HAD TO BE ON THE VERGE OF BANKRUPTCY TO BE ELIGIBLE FOR MONEY
§ MOST OF THE MONEY WENT
UNDISTRIBUTED
-
BONUS MARCHERS
o
VETERANS WHO MARCHED ON
o
REQUEST DENIED BY
o
SENT MAC ARTHUR TO DISBAND DEMONSTRATORS
o
VETERANS VIEWED THIS ACTION AS A BETRAYAL AND INSENSITIVITY TO THEIR
NEEDS
-
“TOO LITTLE
TOO LATE”
13/5
THE EFFECT OF THE DEPRESSION ON VARIOUS GROUPS IN SOCIETY
-
THE EFFECT ON THE FARM COMMUNITY
o MOST
SEVERELY AFFECTED BY THE DEPRESSION
o OVERPRODUCTION
AND DROUGHT INTENSIFIED THE PROBLEMS
§
FORCED SALES – def – BANK SALE OF FORECLOSED PROPERTY
§
PENNY AUCTIONS – def – COLLUSION BY FARMERS
§
OKIES – def – MIGRANTS FROM THE DUST BOWL WHO MIGRATED TO THE WEST FOR JOB
OPPORTUNITIES
§
SHARECROPPERS – def – FARMERS WHO RENTED FARMLAND AND PAID RENT
IN HARVESTED CROPS
§
TENET FARMERS – def – FARMERS WHO PAID RENT IN THE FORM OF MONEY
-
THE EFFECT UPON URBAN
o THE
UNEMPLOYMENT PROBLEM WAS EXACERBATED BY THOSE WHO MIGRATED FORM RURAL
o MORTGAGE
FORECLOSURES INCREASED
o BREADLINES,
APPLE PEDDLERS, AND SOUP KITCHENS WERE EVERYWHERE
o HOOVERVILLES –def –
SHANTYTOWNS OF TIN AND CARDBOARD WHICH ROSE UP ON THE OUTSKIRTS OF CITIES
INHABITED BY THE HOMELESS
o SWEATSHOPS WERE THE
NORM IN MANUFACTURING
13/6
-
THE EFFECT UPON THE FAMILY
o FATHERS LOST
STATUS BECAUSE OF THEIR INABILITY TO FIND WORK
o MOTHERS
INCREASED IN STATUS – SHE BECAME THE BACKBONE OF THE FAMILY
o
§ MANY
YOUNG BOYS LEFT HOME AND WANDERED THE COUNTRYSIDE
o MANY
CHILDREN SUFFERED FROM MALNUTRITION