The 1920s were a time of prosperity for the U.S: the Great War had ended in 1918, upon the end of which there was a brief slump in the economy. However, then, the economy shot up: The president at that time, Harding cut taxes and federal spending, and then left the country to its own devices. (It was rumored that he cared more about his mistress than his country). Because of these and other rumors, there were vicious attacks upon the president, and the stress of deflating these merciless thrusts proved to be too much for him. Harding died in 1923. Vice President Coolidge, who took his place, began a new policy of raising faith in the government that had been lost because of the Teapot Dome Scandal and other similar gaffes turned public during Harding's administration. Thus, in his second term, Coolidge passed the Revenue Act. This act became law in 1926, and chopped taxes on high incomes, but had very little cuts for middle incomes. Now banks could lend out over five billion dollars, mainly because the Reserve banks had created over five hundred million dollars in money during 1924. This was actually the root of the Great Depression, along with the Federal Reserve Board's printing of more billions in 1927, for people had just begun to realize the profits they could make by buying stock, waiting awhile for the price to rise, and selling it again. Thus, they got into great debt, having sold their property or used up their life savings to buy a share of stock. This continued until the Federal Reserve Board, realizing that the country was headed for inflation, began to rethink its policies, and annulled its easy-money deal. The Stock Marked followed, backed by banks, which began asking their clients for payback from the loans that they had given out. The banks stopped lending freely. The stockbrokers, having sold their stock on margin, now demanded more money from their clients, money that the clients could not pay. As a result, clients lost their stocks, and brokers were forced to sell these, which lowered the price. More and more were selling their stocks, afraid that the prices lowering would render them worthless. On October 29, 1929, the Stock Market crashed.
Hoover, elected during that time by Republican backing, did not help. Since he did not understand the employment curve, he did not understand that in order to raise wages, businesses would have to lay off people, otherwise lose money, so when asked for advice, he told businesses not to lay off anyone, just raise the wages. Apart from that he did little or nothing to improve conditions, since he had a genuine belief that the government had no business interfering in the economy. The depression got from bad to worse, until a quarter of the working force were unemployed in 1932, most of the banks were closed, and the average American lived in a "hooverville", a cardboard and wood cabin, and had to beg, steal, or starve.