1929 Wall Street Crash : The black week!

At the time of the crash, The New York Stock Exchange (NYSE) was the largest stock market in the world.

So now we can say that the 1929 crash was one of the most devastating stock market crashes in American history.

The reasons of the crash:

The 1920’s was very strong increase in United State. for example between 1921 and 1929 the production increase more than 50%, the stock exchange increases by 300 % over the same period.

A speculative bubble

A speculative bubble, begins by 1927. She is amplified by the new system of credit purchase of shares, since 1926: The investors can buy titles with a cover of only 10 %. The rate of loan depends on the short-term interest rate; the perpetuity of this system thus depends on the difference between the rate of appreciation of the shares and this rate of loan.

The economy from the beginning 1929 is not so strong any more: for example the automobile production falls of 622 000 vehicles in 416 000 between March and September. The industrial production, it, moves back of 7% between May and October. This slowing down is partially due to a phenomenon of asphyxiation: current assets run up to the stock exchange rather than towards the "real" economy.

October 24th, 1929 Black Thursday, the market finally turned down, and panic selling started. 12,894,650 shares were traded in a single day.

The numerous investors who borrowed to speculate are forced to liquidate their positions.

At 12 o’clock the wall street loses 22,3% But an emergency meeting between five of the main bankers of New York improves the situation is finally the stock exchange loses only 2,1 %.

Monday and Tuesday BLACK

The situation is still the same but the bankers do not intervene so the stock exchange going down: He loose 13% on Monday and 12% and Tuesday.

Between October 22nd and November 13th, the Dow Jones index passes from 326,51 to 198,69 (39 %), what corresponds to a virtual 30 billion dollar loss.

The consequences of the crash:

The reliable loss due to the stock market crisis affects the consumption and the investments during the months following the crash. The investors who speculated by borrowing cannot pay off any more and talk dead losses the crisis becomes then a banking crisis from 1930.The production continue to fall, the unemployment explodes (from 1,5 millions to 15 millions in 1933), and the banking crisis becomes an economic crisis in 1931.

It is that with the entrance of the United States to the Second World War at the end of 1941 that the country stands up durably.

Geoffrey THIRIEZ geoffrey.thiriez@espeme.com