BLOG7 1929: The Great Crash

The U.S. stock price began to decline at the rate of $2, 4 and 10 on October 23, 1929, which made 2.5 million shares sold in one hour but no one took over. Investors have been hit hard. However, it is believed that this is a small-scale economic crisis, but in the next five days it swept across the United States.

The reason for this depression is that ten years ago, Wall Street investors believed that the government could float bonds to pay for the war, and that enterprises could also float common shares to absorb investment. In 1920, about 3 million Americans invested in stocks and traded for only $6000 for stocks worth $60000, which laid the groundwork for the final collapse of the bubble.

The first reason for this economic bubble is debt consumption. Since the United States entered the electrical age in 1920, people's demand for "luxury goods" like cars and refrigerators has increased, resulting in a new way of consumption - installment plan. The emergence of this consumption mode, on the surface, greatly increased the level of economic activity, but also laid a landmine -- No relative currency support.People have only a few hundred dollars in their accounts, which is not enough to support them to face the recession.

The another reason for this is the instability of the economic system, the lack of risk averse banks and the high-risk stock market. The bursting of  securities bubble triggers a butterfly effect. Banks can fail, assets can shrink, factories can fail, and the government can do nothing. The economy is not always thriving on the surface.

The poor supervision of government departments is also a reason of economic depression. At that time, the U.S. Treasury secretary still believed that the economic trend was in a good direction. Because of the lack of economic theory at that time, it led to a laissez-faire economy. Moreover, at that time, the US government did not take effective measures, when there was a liquidity crisis, not enough to rescue the market.

Reference:

1929: The Great Crash, 19:00 09/09/2009, BBC2 England, 60 mins. https://learningonscreen.ac.uk/ondemand/index.php/prog/00D7E2C7?bcast=33324967. (Accessed 08 Dec 2019).