The impact of the 1929 crisis went far beyond American borders, and strictly economic. The economic and social imbalances are important, which makes this period of Great Depression one of the major historical events of the 20th century.
November 11, 1918: The end of the First World War
The deep economic imbalances that caused the 1929 crisis did not happen overnight. To understand the chain of events that led to this collapse, we have to go back to the end of the First World War. In the aftermath of the conflict, the United States experienced a period of exceptional prosperity and became the world’s leading power. Capitalism is developing at breakneck speed, industrial production is increasing. During the Roaring Twenties, the automotive, aeronautics and entertainment sectors are exploding and New York is the face of this insolent modernity. Banks lend, entrepreneurs invest and spend. A bubble is gradually forming, the explosion of which ten years later will change the world.
1926: the beginning of call loan
The year 1926 is crucial for understanding the events of 1929. It is on this date that what is called the “call loan” in the United States. A system that offers investors, companies and individuals the possibility of buying shares on credit. American households, even the most modest, invest their savings with the promise of getting richer. Companies too will speculate and get into debt instead of investing. All of them hope to repay their loans by counting on a hypothetical future valuation. There are more and more stock marketers and prices are rising. We are witnessing a real speculative boom, totally disconnected from economic realities.
April 1928: Charles Merrill’s warning
Charles Merrill is, along with Edmund C. Lynch, the founder of the American investment bank Merrill Lynch (formerly known as Charles E. Merrill & Co). The real value of companies is overestimated, the selling price of securities is then biased. As early as 1928, Charles Merrill’s cabinet sent a note in which he called for calm the game. “Without this constituting a sales recommendation, now is the time to free yourself from your credits“, he intends. A recommendation that has no resonance.
October 24, 1929: Black Thursday
In 1929, 4/5 of the shares were bought on credit. Until the summer, the price of some shares continues to rise, but from September the market experiences a shortage of steam. The wrongdoing of Clarence Hatry, the operator of the Photomaton patent, is then publicly revealed. We learn that the businessman speculated on the title of his own company, borrowing colossal sums and not hesitating to use false documents. Photo booth is the face of those companies whose value has been falsely inflated.
Panic then begins to take hold of the markets and on Thursday, October 24, everyone wants to sell their securities. 13 million shares are traded on Wall Street. Prices collapsed, securities do not find a buyer and at noon, the Dow Jones shows a drop of 22.6%. There is already talk of several suicides among speculators who have lost everything. The JP Morgan bank and other banking establishments are buying back securities on a massive scale and if the price of certain shares goes up at the close of the session, the fall now appears inevitable. However, nobody is anticipating at this moment the repercussions of this financial crisis which will gradually win over the whole world.
October 29, 1929: the crisis of 1929 was confirmed during the Black Tuesday
On Tuesday, October 29, nearly sixteen million securities were sold and the Dow Jones index lost 12%. The stock market Krack of the previous Thursday is confirmed. Industrial production collapsed by more than half in three years, the unemployment rate fell from 3% to 24%, 23,000 companies which had invested in the stock market went bankrupt in 1929, they were 30,000 in 1931. The crash of 1929 in the States United marks the beginning of the Great Depression, soon dragging Europe in its wake, until World War II.
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