The stock market crash of 1929, also regarded as the Great Crash, refers to the sharp decline in U.S. stock market values with the collapse of stock prices.
Being one of the most devastating financial crisis of 20th century, the Great Crash started in September 1929 as a consequence of several background reasons and ended up with many considerable aftereffects mostly caused by the decrease in the value and reliability of the market.
What were the reasons for "Great Crash" ?
Although theories about what caused the Great Crash specifically may differ, the consensus among people states that excessive wealth and rapid economic growth of the decade called “Roaring Twenties” led to this crises (White, 1990). In 1920s, denoted as “Roaring Twenties”, White (1990) argues that since these times were the the times of wealth for U.S. there appeared an interest in public about investing in the bull market which led a significant rise in the stock market. This increase was indicating that the more you invest in the bull market the more you will gain return, which of course motivated investors to buy more stocks and even further this motivation is “fueled by an expansion of credit in the form of brokers' loans” for the sake of becoming higly leveraged (White, 1990, p.68). Hence, it can be said that sharp increase in stock market created an unsustainable asset buble which was going to burst someday.
Why many people failed to see the signs of upcoming crisis?
Common belief in that period of time was that the rise in the stock market will continue to grow since “the Dow Jones Industrial Average (DJIA) index almost doubled, from 158.54 at the beginning of 1926 to 308.85 at the end of March; then it moved ahead even faster during the summer, with a peak of 386.1 on September 3”. (James, 2010, p.133 ) Hence, for many people there were no sign of financial crisis and they continue to be involved in stock market.However, there were some signes of oncoming crises. As an example, it can be understood from White (1990) that the Federal Reserve’s index of industrial production indicated fall in some indices which could be enough for predicting oncoming recession.
Eventually Black Days had begun...
After “the market drifted downwords in early October”, 1929 stock market crash occurred on Thursday the 24th and Tuesday the 29th of October which later called “Black Thursday” and “Black Tuesday” respectively (White,1990, p.81). Harold Bierman (2008) shares some data of these days as “On September 3, 1929, the Dow Jones Industrial Average reached a record high of 381.2. At the end of the market day on Thursday, October 24, the market was at 299.5 — a 21 percent decline from the high. On this day the market fell 33 points — a drop of 9 percent — on trading that was approximately three times the normal daily volume for the first nine months of the year.” The financial meaning of these values were devastating for both U.S. and the world economy since with such sharp decline the confidence in the U.S. market decreased significantly which affected U.S. and U.S. related economies in a negative way.
Aftermath of such devastating financial crisis were...
The consequences of the Great Crash were even more devastating that the collapse came with that crash did not diminish over a period of time but created a stock market panic which results with drop in the prices. The stocks lost value as a result of the panic and uncertanity caused by this crash have triggered a severe worldwide economic depression, which denoted as the “Great Depression” (Romer, 1990). By considering these, it’s not really hard to interpret that because of stock market crash in 1929 many people lost both their money and their faith in Wall Street which made recovery period longer and harsher for the U.S. economy.
Taking the notations stated above into consideration, it can be mentioned that as one of the major stock market crashes, the Great Crash is followed by the burst of unsustainable asset buble created by the escessive wealth and regulations of 1920s and results with an unexpected sharp decline in the stock market meaning that not only people lost their severe amount of money but also they lost their faith in U.S. economy because of the panic which later triggered the Great Depression.
REFERENCES
· Bierman, Harold. “The 1929 Stock Market Crash”. EH.Net Encyclopedia, edited by Robert Whaples. March 26, 2008. URL http://eh.net/encyclopedia/the-1929-stock-market-crash/
· Charles G. Leathers & J. Patrick Raines (2008) John Kenneth Galbraith's Contributions to the Theory and Analysis of Speculative Financial Markets, Review of Political Economy, 20:4, 551-568, DOI: 10.1080/09538250802308935
· Christina D. Romer, The Great Crash and the Onset of the Great Depression, The Quarterly Journal of Economics, Volume 105, Issue 3, August 1990, Pages 597–624, https://doi.org/10.2307/2937892
· Galbraith, John Kenneth (1997). The Great Crash, 1929. Houghton Mifflin Harcourt. p. 84. ISBN 0-395-85999-9
· James, Harold. 2010. 1929: The New York Stock Market Crash. Representations. 110. 129-144. 10.1525/rep.2010.110.1.129.
· White, Eugene N. 1990. "The Stock Market Boom and Crash of 1929 Revisited." Journal of Economic Perspectives, 4 (2): 67-83. DOI: 10.1257/jep.4.2.67
Comentarios