One, Two, Three… Panic
America went through one of its greatest periods of growth during the 1920s, a period colloquially known as the Roaring Twenties. During this period, America experienced great prosperity through increased wealth and excess. Rural Americans were moving into the cities in hopes of finding the new jobs that had been created because of the industrialization of American cities from the recent conclusion of the World War. As the rural Americans migrated into the cities, rural farming and agricultural businesses began toil, and has been popularly cited as one of the bigger factors for causing the stock market crash in 1929.
A sequence of world events started in London with the arrest of top financiers in England for fraud and forgery. Confidence began to sway, and consequently the American markets began to see a general dip in prices. After a sequence of dramatic falls in the market, confidence began to decay to the point that dips in prices started to swell and financial panic began to ensue. American investors and top bank financiers could do nothing over the next few months as the market began to dramatically continue to fall, as financial panic ensued.
The Wall Street Crash had a major impact on the US and the world. The Roaring Twenties inherently failed after the emergence of the Great Depression. With the lack of financial development and regulation, there was a lack of a lender of last resort which could have likely shortened the slowing business cycle after the initial panic.
As the crash began to expand, businesses soon realized their inability to gain investment for new projects because of the lack of trust in the financial market. As uncertainty began to arise for these businesses, employees and workers suddenly had their jobs thrown into doubt as consumption began to decline with the crash. Bankruptcies, failures and closures, layoffs, and a general lack of demand soon followed as stock prices continued to fall. As Time puts it, the falls peaked on a day known as “Black Tuesday” – “As the story goes, the opening bell was never heard on Black Tuesday because the shouts of “Sell! Sell! Sell!” drowned it out. In the first thirty minutes, 3 million shares changed hands and with them, another $2 million disappeared into thin air.” (TIME).
Many speculate that the fall of Wall Street led to the rise of mass unemployment, although many economic factors led to the crash which preceded the lengthy Great Depression. The stock market crash is seen to be the most significant event that signaled the downward fall which would cause the Depression around the world. The stock market crash, while holding only about 20% in investment from the American public, affected everyone. It wiped out billions of corporate wealth in American businesses, and is a direct cause of the fall of consumer demand.
As money began to fall, gold deposits began to rise in their value as demand increased. According to historical accounts provided by the Federal Reserve’s website, as a direct result of the increase in demand for gold, the Fed had to raise interest rates, essentially dooming thousands of banks and lenders because of the lack of sustainability of businesses in a depression with high interest rates. The Fed also had to implement new market rules for short selling as they forced investors to only short sell if the stock was above $0 in price, so that the market could not continue to fall.
However, Americans were not the only ones affected by the crisis. The stock market crash also led to the Great Depression in Europe, as the world noticed the general free fall in the New York Stock Exchange during the crash. According to Britannica, financial leaders did not realize how much of a free-fall the American economy would fall into, as the financial and trading links between world economies and America were at their heights because of the recent World War and general industrialization. Financing became impossible for the United States, demand was falling – causing a dip in demand for exports from other countries and imports – and production was falling as there was no need to supply more products that customers would not end up buying. Strikes and demonstrations soon began because of these conditions, as the government could not afford to protect or finance the swathe of new families who entered into poverty because of the recession.
According to the Guardian, “Across the Atlantic, Germany was suffering its second economic calamity in less than a decade. In 1923, the vindictive peace terms imposed by the Treaty of Versailles had helped to create the conditions for hyperinflation, when one dollar could be exchanged for 4.2 trillion marks, people carted wheelbarrows full of useless notes through the streets, and cigarettes were used as money.” The effects of Britain’s fall also led to into Germany, as the pound began to fall in value and Britain could offer products at a much cheaper rate than their German competitors. In essence, the crash was a duplex of issues: the fall of stock prices which was also causing the issue of governments trying to rebound – competition was getting much more difficult as products were being produced cheaper and not actually repairing the negative margins from the sudden falls from stock prices.