The Wall Street Crash of 1929 , also known as Black Tuesday (29 October), Large Damage , or 1929 Stock Market Damage , commencing on October 24, 1929 ("Black Thursday"), and is the most devastating stock market crash in US history, when fully considering its duration of effect. The accident, which followed the fall of the London Stock Exchange in September, marks the beginning of a 12-year Great Depression affecting all Western industrialized nations.
Video Wall Street Crash of 1929
Timeline
The Roaring Twenties, the decade that followed World War I and caused the accident, is a time of wealth and prosperity. By building post-war optimism, rural Americans migrate to large cities throughout the decade in the hope of finding a more prosperous life in the expansion of the expanding American industrial sector. While American cities are prosperous, overproduction of agricultural produce creates a widespread financial despair among American farmers throughout the decade. This would then be blamed as one of the key factors that led to the 1929 stock market crash.
Despite the dangers of speculation, many believe that the stock market will continue to rise forever. On March 25, 1929, after the Federal Reserve warned of excessive speculation, a minor accident occurred when investors began to sell stocks very quickly, revealing the faltering market foundations. Two days later, banker Charles E. Mitchell announced his company, National City Bank will provide $ 25 million in credit to stop the market downturn. Mitchell's move led to temporary cessation of the financial crisis and call money down from 20 to 8 percent. However, the American economy is showing signs of trouble: steel production is falling, construction is flagging, auto sales are down, and consumers are building up high debt due to easy credit. Despite all signs of economic hardship and market gap in March and May 1929, stocks continued their gains in June and gains continued to continue until early September 1929 (average Dow Jones up more than 20% between June and September). The market has been in nine years running which saw the Dow Jones Industrial Average rise tenfold, peaking at 381.17 on September 3, 1929. Shortly before the crash, economist Irving Fisher announced, "The stock price has reached what looks like a permanent plateau. "The bull market's bullish financial optimism and profitability was shaken after an early September prediction published by finance expert Roger Babson that" an accident will come ". The early September drop was called "Babson Break" in the media. This was the start of Great Crash, though until the severe phase of the crash in October, many investors considered September's "Babson Break" as a "healthy correction" and a buying opportunity.
On September 20, the London Stock Exchange fell when British investor Clarence Hatry and many of his colleagues were jailed for fraud and forgery. The London crash greatly undermines the optimism of American investment in overseas markets. In the days leading up to the accident, the market was very unstable. The period of sales and high volume interspersed with short periods of price increases and recovery.
Sales increased in mid-October. On October 24 ("Black Thursday"), the market lost 11 percent of its value on the opening bell on a very heavy trade. The enormous volume means that the price report on ticker tapes in brokerage offices across the country is late for hours, so investors do not know what exactly shares are actually trading at the moment, raising the panic. Some of the leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor. The meeting included Thomas W. Lamont, who acted as head of Morgan Bank; Albert Wiggin, head of the National Bank of Chase; and Charles E. Mitchell, president of National City Bank of New York. They chose Richard Whitney, vice president of the Exchange, to act on their behalf.
With the financial source of the banker behind him, Whitney made an offer to buy a large block of stocks in the United States at a price well above the current market. When traders watched, Whitney then placed a similar offer on other "blue chip" stocks. This tactic is similar to the tactics that ended the Panic of 1907. It managed to stop the slide. The Dow Jones Industrial Average Index recovered, closing by just down 6.38 points for the day. The demonstrations continued on Friday, October 25, and a half-day session on Saturday the 26th but, unlike 1907, the break was temporary.
Over the weekend, the event was covered by newspapers across the United States. On October 28, "Black Monday", more investors facing the margin call decided to get out of the market, and the decline continued with a record loss on the Dow for 38.33 points, or 13%.
The next day, "Black Tuesday", October 29, 1929, about 16 million shares traded because panic sales reached its peak. Some stocks do not actually have a buyer at any price that day ("air bag"). The Dow lost an additional 30 points, or 12 percent. The volume of shares traded on October 29, 1929, is a record that is not damaged for nearly 40 years.
On October 29, William C. Durant joins Rockefeller family members and other financial giants to buy large quantities of stocks to show publicly their confidence in the market, but their efforts fail to stop large price reductions. Due to the large volume of stocks traded that day, the ticker does not stop running until around 7:45. The market has lost more than $ 30 billion in two days including $ 14 billion on October 29 alone.
After a one-day recovery on Oct. 30, where the Dow regained 28.40 points, or 12 percent, to close at 258.47, the market continued to fall, arriving below temporarily on Nov. 13, 1929, with the Dow closing at 198.60. The market then recovered for several months, starting on November 14, with the Dow gaining 18.59 points to close at 217.28, and reaching the peak of the secondary closure (ie, bear market rally) from 294.07 on April 17, 1930. The following year, The Dow started again, a longer and steady decline from April 1931 to July 8, 1932, when it closed at 41.22 - the lowest level in the 20th century, ending a 89 percent loss rate for all market shares. For much of the 1930s, the Dow began slowly to regain lost ground during the 1929 crash and three years later, starting on March 15, 1933, with the largest percentage increase of 15.34 per cent, with the Dow Jones closing at 62.10, with an increase of 8.26 points. The largest percentage of the Dow Jones rise occurred during the early and mid 1930s. By the end of 1937, there was a sharp decline in the stock market, but prices stayed well above the 1932 lows. The market would not return to its peak close on September 3, 1929, until November 23, 1954.
Maps Wall Street Crash of 1929
Analysis
Economic fundamentals
The accident followed a speculative explosion that occurred in the late 1920s. During the second half of the 1920s, steel production, building construction, retail turnover, registered cars, even railway receipts advanced from record to record. The combined net profit of 536 manufacturing and trading companies showed an increase, in the first six months of 1929, from 36.6% above 1928, which is a half-year record. Iron and steel lead the way with a double profit. Such numbers form the speculation of stock speculation that has caused hundreds of thousands of Americans to invest heavily in the stock market. A large number of them borrow money to buy more stock. In August 1929, brokers routinely lend small investors more than two-thirds of the face value of the shares they buy. More than $ 8.5 billion was lent, more than the entire number of currencies in the US at that time.
An increase in stock prices encourages more people to invest; people expect stock prices to rise further. Such speculation sparked further increases and created an economic bubble. Due to the purchase of margin, investors will lose a significant amount of money if the market is denied - or even fail to progress fast enough. The average P/E (price to earning) ratios of S & amp; P Composite was 32.6 in September 1929, clearly above historical norms. Consistent with economist John Kenneth Galbraith, this excitement also generates a large number of people who put their savings and money into leveraged investment products such as Goldman Sachs' "Blue ridge trust" and "Shenandoah trust". It also fell in 1929 which resulted in losses to the bank of $ 475 billion (in 2010 dollars, which is equivalent to $ 533.06 billion in 2017).
A good harvest has produced a mass of 250 million bushels of wheat to "get carried away" when 1929 is opened. In May there was also a winter crop harvest of 560 million bushels ready to be harvested in the Mississippi Valley. This oversupply caused the fall in the price of wheat so large that the net income of the agricultural population of the grain is threatened with extinction. The stock market is always sensitive to the future state of the commodity market, and the decline on Wall Street predicted for May by Sir George Paish arrives on time. In June 1929, the position was saved by a severe drought in Dakotas and Western Canada, plus an unfavorable seed period in Argentina and eastern Australia. Excess supply will now want to fill a huge gap in world wheat production in 1929. From 97Ã, Â ¢ per bushel in May, wheat prices rose to $ 1.49 in July. When it was seen that at this figure American farmers would get more for their smaller crops than in 1928, riding away more stocks and from various orders came to buy stocks for future profits.
In August, wheat prices dropped as France and Italy boasted overwhelming crops, and the situation in Australia improved. It sent a thrill through Wall Street and stock prices fell quickly, but cheap stock words brought fresh "stag", amateur speculators, and investors. Congress has also selected a 100 million dollar aid package for farmers, hoping to stabilize the price of wheat. In October, the price has dropped to $ 1.31 per bushel.
Other important economic barometers also slowed or even fell in mid-1929, including car sales, home sales, and steel production. The fall in commodities and industrial production may have undermined American confidence, and the stock market peaked on September 3 at 381.17 just after Labor Day, then began to waver after Roger Babson issued a forecast "market crash." At the end of September, the market dropped 10% from the peak ("Babson Break"). Sales increased in early and mid-October, with sharp days punctuated by a few days and up. Large-scale panic sales began on October 21st and intensified and peaked on October 24, the 28th, and especially on the 29th ("Black Tuesday").
President Chase National Bank said at the time:
We are reaping the natural fruit of speculation in which millions of people have indulged. That is unavoidable, due to the tremendous increase in shareholder numbers in recent years, that the number of sellers will be greater than ever when the boom ended and the sale took place of buying. "
Next action
In 1932, the Pecora Commission was established by the US Senate to study the cause of the accident. The following year, the US Congress passed the Glass-Steagall Act mandating a separation between commercial banks, which took deposits and extended lending, and investment banks, which guaranteed, issued, and distributed stocks, bonds and other securities.
After the 1929 crash experience, stock markets around the world instituted measures to suspend trading in the event of a rapid decline, claiming that measures would prevent panic sales. However, one day Black Monday crash, October 19, 1987, when the Dow Jones Industrial Average was down 22.6%, worse in terms of percentage than a single day in a 1929 collision (though the combined 25% decrease on October 28, 29, 1929 was greater than 19 October 1987, and remains the worst two-day decline ever).
World War II
The mobilization of America for World War II in late 1941 displaced some ten million people out of the civilian labor force and into war. World War II had a dramatic effect on many parts of the economy, and may have accelerated the end of the Great Depression in the United States. Government-financed capital expenditures accounted for only 5 percent of annual US investment in industrial capital in 1940; in 1943, the government accounted for 67 percent of US capital investment.
Effects
Together, the stock market crash of 1929 and the Great Depression formed the biggest financial crisis of the 20th century. The panic of October 1929 came as a symbol of economic contraction that gripped the world over the next decade. The fall of stock prices on 24 and 29 October 1929 is practically instantaneous in all financial markets, except Japan.
The Wall Street Crash has a huge impact on the US and the world economy, and has been the source of a strong academic debate - historically, economically, and politically - from the consequences to this day. Some people believe that abuse by utility holding companies contributed to Wall Street Crash in 1929 and the subsequent Depression. Many people blame accidents in commercial banks that are too eager to place risky deposits in the stock market.
In 1930, 1,352 banks had more than $ 853 million in deposits; in 1931, one year later, 2,294 banks fell with deposits of nearly $ 1.7 billion. Many businesses fail (28,285 failures and daily rates 133 in 1931).
The 1929 crash brought Roaring Twenties to a shuddering halt. As temporarily expressed by the economic historian Charles P. Kindleberger, in 1929, no effective lender of last resort was present, which, if already existed and done correctly, would be the key in shortening the slowing down of business that typically follows the financial crisis. The accident marks the beginning of widespread and long-lasting consequences for the United States. Historians are still debating the question: does the 1939 Crash Spark The Great Depression, or does it coincide only with the burgeoning economic bubble inspired by credit? Only 16% of American households were invested in the stock market in the United States during the period leading up to depression, suggesting that accidents were somewhat less severe in causing depression.
However, the psychological effects of the crash resounded across the country as businesses became aware of the difficulties in securing capital market investment for new projects and expansions. Business uncertainty naturally affects job security for employees, and because American workers (consumers) face uncertainty related to income, of course the tendency to consume decreases. The decline in stock prices led to severe bankruptcies and macroeconomic difficulties including credit contractions, business closures, job dismissals, bank failures, falling money supply, and other pressing economic events.
An increase in mass unemployment is seen as the result of an accident, although the accident does not mean the only event that contributes to depression. The Wall Street Crash is usually seen as having the greatest impact on the events that followed and is therefore widely regarded as a sign of a downward economic downturn that started the Great Depression. True or not, the consequences are terrible for almost everyone. Most academic experts agree on one aspect of accidents: Destroying billions of dollars of wealth in one day, and this instantly depresses consumers.
The failure triggered a worldwide run on US gold deposits (ie dollars), and forced the Federal Reserve to raise interest rates to a slump. Around 4,000 banks and other lenders eventually failed. Also, the uptick rule, which allows short selling only when the last tick in the stock price is positive, is implemented after the 1929 market crash to prevent short sellers from pushing stock prices down in bear attacks.
Effects in Europe
The stock market crash of October 1929 immediately led to the Great Depression in Europe. When stocks slumped on the New York Stock Exchange, the world soon realized it. Although financial leaders in Britain, as in the United States, greatly underestimated the extent of the crisis, it soon became clear that the world economy was more interconnected than ever before. The effects of disruptions to the global system of financing, trade, and production and the subsequent economic crisis of America were soon felt throughout Europe.
During 1930 and 1931, in particular, unemployed workers went on strike, demonstrated in public, and instead took direct action to call the public's attention to their suffering. Protests are often centered on so-called Meaning Tests, which the government instituted in 1931 as a way to limit the amount of unemployment payments made to individuals and families. For people who work, Test Means appears to be an intrusive and insensitive way to deal with the chronic and endless seizure caused by the economic crisis. The strike was carried out by force, with police breaking protests, arresting demonstrators, and accusing them of crimes related to public order offenses.
Academic debates
Economists and historians disagree about what role the accidents play in subsequent economic, social and political events. The Economist argued in a 1998 article that the Depression did not start with the fall of the stock market, nor was it clear at the time of the crash. They ask, "Can the very serious Stock Exchange collapse produce a serious setback for industry when industrial production is for the most part in healthy and balanced condition?" They argue that there should be some setbacks, but there has not been sufficient evidence to prove that it will be long or that it needs to go to the length of generating a general industry depression.
But The Economist also warned that some bank failures are also expected and some banks may not have the remaining reserves to finance commercial and industrial companies. They conclude that the bank's position is the key to the situation, but what will happen is unpredictable.
Academics saw Wall Street Crash in 1929 as part of a historical process that is part of a new theory of boom and bust. According to economists such as Joseph Schumpeter, Nikolai Kondratiev and Charles E. Mitchell, the accident was just a historical event in a sustainable process known as the economic cycle. The impact of the collision is simply to increase the speed at which the cycle goes to the next level.
Milton Friedman , co-written with Anna Schwartz, advances the argument that what makes "severe contractions" so severe is not a deterioration in the business cycle, protectionism, or 1929 stock market crashes in themselves - but on the contrary, according to Friedman and Schwartz, which drowned the country into deep depression was the collapse of the banking system during three waves of panic during the period 1930-33.
See also
- The largest daily list of changes in the Dow Jones Industrial Average
Note
Further reading
- Axon, Gordon V. The Stock Market Accident 1929. London, England: Mason & amp; Lipscomb Publishers Inc., 1974.
- Bierman, Harold (March 26, 2008). Whaples, Robert, ed. "The 1929 Stock Market Crash". EH.Net Encyclopedia . Santa Clara, California: Association of Economic History . Retrieved February 2, 2017 .
- Brooks, John. (1969). Once on Golconda: A True Drama from Wall Street 1920-1938 . New York: Harper & amp; Line. ISBNÃ, 0-393-01375-8.
- Galbraith, John Kenneth. "1929: New York City." Quarter Lapham , no. 2 (Spring 2015): 145-146
- Klein, Maury. (2001). Rainbow's End: The Crash of 1929 . New York: Oxford University Press. ISBN: 0-19-513516-4.
- Klingaman, William K. (1989). 1929: Year of the Great Accident . New York: Harper & amp; Line. ISBN: 0-06-016081-0.
- Leone, Bruno. The Great Depression: Against View, 14-25. San Diego, CA: Bender, David L., 1994.
- Pendergast, Tom. The American Decade: 1920-1929 . Farmington Hills, MI: UXL American Decades Publishing, 2003.
- Reed, Lawrence W. (1981 & amp; 2008). Great Myths of the Great Depression . Midland, Michigan: Mackinac Center.
- Rothbard, Murray N. (2000). The Great American Depression (PDF) (5th ed.). Auburn, Alabama: Ludwig von Mises Institute. ISBN 978-0-945466-05-5 . Retrieved May 13 2010 .
- Shachtman, Tom. (1979). The Day America Crashed: The Narrative Account of the Great Stock Market Crash of 24 October 1929 . New York: G.P. Putnam. ISBNÃ, 0-399-11613-3.
- Thomas, Gordon and Morgan-Witts, Max. (1979). The Day the Bubble Burst: A Social History from Wall Street Crash 1929 . Garden City, New York: Doubleday. ISBNÃ, 0-385-14370-2.
- Watkins, Tom H.
22-55. New York, NY: Little, Brown & amp; Company, 1993.
External links
Media related to Wall Street Crash in 1929 on Wikimedia Commons
- The Crash of 1929 , the American Experience documentary
Source of the article : Wikipedia
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