• The Great Depression Begins

    The fast lifestyles and excessive spending of the 1920s couldn’t last forever. Too many people had bought stocks on margin (taken loans to buy stocks). Most Americans already owned cars and household goods, yet factories kept pumping out more products that no one was buying. Prices for food dropped and farmers weren’t getting paid. Already in debt, many farmers couldn’t pay their bills and lost their farms. Then on October 29, 1929, the stock market crashed. Investors lost nearly $8 billion in one day. The country was already in economic trouble. The stock market crash pushed America over the edge.

    The Great Depression Begins

    Fun Facts

    • People had made huge fortunes in the stock market, but after the crash, they lost faith in it. Stock brokers demanded that people pay their margin loans; banks demanded that stock brokers pay back their loans. But because the stocks had no value, people couldn’t pay back their loans.
    • People took their money out of banks too, causing banks to fail.
    • Factories started closing and laying people off. Without jobs, these people had no way to support their families.
    • Through most of the 1920s, the unemployment rate was around 5 percent, but it jumped to almost 25 percent in 1932. People lost their homes and men traveled on foot or by train to other towns in search of work.
    • Charities and local governments tried to help, but they quickly ran out of money too.
    • President Hoover worried about creating government programs to solve the economic problems. He believed in a small federal government that supports strong state and local governments. He was afraid that people would become permanently dependent on government programs to take care of them.
    • Hoover asked state governments to create projects that would provide jobs, such as building the Hoover Dam. These programs weren’t enough to pull the country out of the Great Depression.
    • People were angry at President Hoover. They wanted him to do more. Veterans of World War I set up cardboard and tin shacks at the capitol in Washington D.C. They wanted Congress to pay bonuses, which weren’t scheduled to be paid until 1945. Congress refused to release the payments and sent troops to dismantle the shacks. Americans were furious.
    • Homeless people lived together in city parks. They named their communities, “Hoovervilles” and slept under newspapers they called, “Hoover blankets.”

    Vocabulary

    1. Margin: to buy stock with borrowed money
    2. Veteran: someone who has served in the military
    3. Shack: small, primitive building or home

    Questions and Answers

    Question: Should President Hoover have done more to help the country?

    Answer: People still disagree about that. President Franklin D. Roosevelt started many social programs when he took office after Hoover. These programs did relieve suffering and did help pull the country out of the Depression. These social programs were meant to be short-term, but continue today. They probably have made people more dependent on the government, in some cases, just as Hoover feared. They’ve also created national debt.

    Question: Could a depression happen again?

    Answer:It’s possible. The Great Recession of 2008-2010 was a time of serious economic stress for America. There have been other periods of financial struggle and it’s likely that there will be again. But, people can be prepared for these times by avoiding debt, living simply, and setting aside emergency savings.

    Learn More

    Visit Scholastic to read firsthand accounts of what life was like during the Great Depression.

    Learn more about managing money well.

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