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Hoover is elected
Herbert Hoover became president. His laissez-faire economic policies did little to stop the Depression. He believed a free-market economy would allow the forces of capitalism to fix any economic downturn. As a result, he lowered the top income tax rate from 25% to 24%. -
The depression begins
August: The economic activity from the Roaring Twenties reached its peak. After that, it started to contract. It was the true start of the Great Depression. That same month, the Federal Reserve raised the discount rate from 5% to 6% to prevent inflation and defend the gold standard. -
The rise in unemployment
December: The unemployment rate was still just 3.2%. Since unemployment is a lagging indicator, it hadn't started to worsen yet. There were 650 bank failures. As banks failed, it reduced the money supply because there was less credit available. That meant each dollar was worth more. As the value of the dollar rose, prices fell. That reduced revenue for businesses. -
Smoot-Hawley Tariff Act
Hoover signed the Smoot-Hawley Tariff Act, which raised taxes on 900 imports. It originally was supposed to help farmers but ended up imposing tariffs on hundreds of other products. Other countries retaliated, setting off a trade war. As a result, international trade began to collapse. -
The Bank of Tennessee failed.
That led to failures of affiliate banks in the next few days. Although the economy was improving, weaknesses in the banking system pulled it back down. Only one-third of the nation's 24,000 banks belonged to the Federal Reserve banking system. Non-members did not have enough access to reserves to fend off bank runs. As bank failures grew, depositors rushed to banks to pull out their savings. Banks only hold 10% of all deposits, so they can lend out the rest. -
The Bank of the United States failed
It was the fourth-largest bank in the nation, and the largest bank failure in history at that time. Worried about budget deficits, Hoover returned the top income tax rate to 25%. The economy shrank 8.5%. The unemployment rate rose to 8.7%. Deflation set in as prices fell 6.4%. -
Food riots broke out in Minneapolis.
The drought continued, hitting eight Southern states the worst. It was the worst drought in the 20th century for Arkansas. The economy shrank 6.4%. The unemployment rate rose to 15.9%. Prices fell another 9.3% People began to suffer the worst effects of the Great Depression. -
Congress created the Reconstruction Finance Corporation
Congress created the Reconstruction Finance Corporation to lend $2 billion to financial institutions to prevent further failures. In July, Congress authorized it to lend money to states for relief. -
Revenu Act
Hoover signed the Revenue Act of 1932. It increased the top income tax rate to 63%. He wanted to reduce the federal deficit. Hoover believed it would also restore confidence. Instead, higher taxes worsened the Depression. -
Bank failures slowed
construction contracts increased 30% and department store sales rose 8 percent. Fourteen dust storms hit the Midwest. The economy shrank 12.9%, unemployment rose to 23.6%, and prices fell 10.3%. -
Franklin Delano Roosevelt launched the New Deal
the New Deal with the Emergency Banking Act. It closed all U.S. banks to stop devastating failures. -
The Federal Emergency Relief Act
The Federal Emergency Relief Act created more Federal jobs. The Agricultural Adjustment Act paid farmers to limit crops, thus raising prices. The Emergency Farm Mortgage Act provided loans to save farms from foreclosure. The Tennessee Valley Authority Act built power stations in the poorest area in the nation. The Securities Act required companies to educate investors when issuing stocks. -
Housing Administration provided federal mortgage
The Federal Housing Administration provided Federal mortgage insurance. The Securities and Exchange Commission regulated the stock market. The FCC consolidated all federal regulation of telephone, telegraph, and radio communications. -
FDR began his second term.
He launched a third New Deal. The Wagner-Steagall Act funded state-run public housing projects. The Bonneville Power Administration delivered and sold power from the Bonneville Dam. The Farm Tenancy Act provided loans for tenant farmers to buy farms. The Farm Security Administration replaced the Resettlement Administration. FDR cut spending to reduce the debt. That cutback in New Deal spending pushed the economy back into the Depression. FDR pushed Congress to enact a $5 billion relief program -
FDR abolished mark to market accounting
Some experts believed it forced many banks out of business. The rule forced banks to write down their real estate as values fell. FDR's new rule allowed them to keep these assets on their books at historical prices.