1929’s share market crash is regarded as the most disastrous occurrence in the heritage of the US financial marketplace. On October 29, a day renowned as Black Tuesday, the stock plunged 12%, sparking what would become the Great Depression (Beaudreau 631). Investment firms and senior bankers sought to calm the sector on Friday by purchasing large blocks of shares, resulting in a small gain. On Monday, though, the storm reemerged, and the market plunged precipitously. Black Monday was preceded by Black Tuesday when stock values dropped, and 16,410,030 shares were transacted in a single record day on the New York Stock Exchange (NYSE) (Beaudreau 632). The loss of billions of dollars wiped out tens of thousands of shareholders, and stock widgets ran hours adrift due to the inability of the infrastructure to manage the enormous volume of trade (Beaudreau 632). Therefore, this essay discusses some of the impacts of the 1929 stock market crash on the USA, such as the rapid acceleration of the Great Depression, the failure of banking institutions, and changes in monetary policies.
Acceleration of the Great Depression
After October 29, 1929, stock values continually rose upwards, resulting in a significant resurgence in the following weeks. Overall, prices kept falling as the United States entered an economic crisis. By 1932, the valuation of equities was only around 20% of what they were valued in the summer of 1929 (Cortes et al. 580). The 1929 stock market meltdown was not the only origin of the Great Depression, but it accelerated the worldwide recession that was a consequence. Approximately half of America’s financial institutions had failed by 1933, and joblessness was nearing 15 million, or 30% of the labor population (Cortes et al. 580). African Americans were the last to be employed and the first to be let go, leaving them particularly vulnerable.
Women fared marginally better than males during the Great Depression because conventionally female occupations, such as education and nursing, were less susceptible to market fluctuations. In addition, during the Great Depression, life for the average household was challenging. Downpours and an extreme drought destroyed crops in the Southern Plains, earning the region the ‘moniker dust bowl’ (Cortes et al. 580). Oakies, as departing locals were known, relocated to major cities in search of employment. The highly wealthy lost money during the financial crisis, but they could barely afford it.
The vast majority could not bear any monetary loss, which had a significant economic consequence as these individuals could no longer spend their money and consequently did not purchase consumer goods. As a result of the lack of demand, stores went bankrupt, and companies did not need to employ individuals who were creating things that were not selling. Consequently, joblessness became a serious concern. There was no unemployment benefits system, and organizations such as the Salvation Army provided free accommodation and food. It is known that some individuals starved to death and that in other places, men set fire to forests to gain seasonal work in the fire brigade. At the same time, landowners slaughtered their animals since no one could spend money on them in the metropolis, where there was widespread famine.
Failures of Financial Institutions
Instead of attempting to sustain the banking markets, the Federal Reserve, believing that the catastrophe was inevitable or preferable, did nothing to avert the cascade of banking crises that incapacitated the monetary sector, exacerbating the recession. Treasury urged the then-president that financial firms should liquidate employment, sell shares, expropriate agriculture, and downsize home equity to expunge the economy of rot (Kyle and Anna 10). The disaster was compounded by the fall of a concurrent international bond splurge. This vendor-financed desire for American merchandise vanished instantly since the market for American exports had been bolstered by the massive sums given to foreign lenders. However, the marketplace did not decline steadily as early as 1930; the market had a typical short-lived recovery of stock prices before crashing again (Kyle and Anna 11). Therefore, the banking sector in the United States was paralyzed by the 1929 stock market crisis.
Consolidation of Electricity Companies
After a decade of unprecedented production and economic growth, assessments of industrial businesses trading at price-to-earnings ratios (P/E ratios) above 15 did not appear outlandish (Bruner and Scott 45). By 1929, thousands of power businesses had been aggregated into investment groups controlled by other corporate entities that controlled almost two-thirds of American industry (Bruner and Scott 45). Some of these intricate, overleveraged structures had ten layers between the top and bottom. The Federal Trade Commission (FTC) warned in 1928 that the unethical business practices of these holding corporations, such as defrauding affiliates through service agreements and false bookkeeping concerning amortization and inflated housing prices, posed a threat to investors. The Federal Reserve decided to limit speculating because it diverted funds from constructive uses. In August, the Fed increased the discount rate to 6% from 5%, a move that, according to some economists, stifled industrial prosperity and restricted stock market stability, making the marketplaces more susceptible to sharp price declines (Bruner and Scott 45). As a result, due to the crisis, most electrical companies merged.
Changes in the Monetary Policies
Preceding Black Tuesday, there was a coordinated, international shrinkage of financial regulation, which was principally caused by the Federal Reserve’s concern over stock values. The economic implications of these acts were predictable, and by the second quarter of 1929, it was evident that the economy was slowing down (Cogley 294). The US economy reached its highest point in August and entered a downturn in September. Not only was monetary policy restrictive in the United States, but also throughout other countries. Approximately three-dozen nations had adhered to the gold standard by that time, and when the Fed tightened, several nations encountered a conundrum (Cogley 294). If their central banks did not likewise tighten, funding from the United States would be disturbed, and their equilibrium payments would shift toward a deficit.
The New York Fed took swift and decisive measures to relieve credit standards immediately after the catastrophe. When venture capitalists sought to sell their equity holdings, several borrowers contacted brokerage dealers about their obligations. With the help of New York Fed executives, many of these merchants’ liabilities were assumed by New York banks, which were permitted to borrow freely via the discount window (Cogley 295). Additionally, the New York Fed purchased government assets for its account to pump deposits into the financial system (Cogley 295). Thus, they managed an impending liquidity crisis and avoided its extension to the money sector: however, this financial reprieve proved to be brief.
After the liquidity situation was controlled, fiscal policy regained its deflationary posture. Throughout 1930, New York Fed officials frequently advocated that the System purchase treasury bonds on the public markets, but their proposals were consistently rejected (Cogley 295). The reasons other Federal Reserve governors give for their opposition to monetary growth are illuminating. Several individuals believed that a substantial portion of the investments made during the preceding expansion was fundamentally flawed and that the industry could not recuperate unless they were discarded (Cogley 295). Others believed that a credit stimulus would spark a new round of speculation, possibly in the stock exchange.
Impact on the Stock Market
At the start of 1929, the recessionary policies implemented in 1928 appeared to bear fruit. The short-term consequences on the stock market was that the price-dividend ratio on the New York Stock Exchange hit a local top in January and then declined rapidly over the year’s first half. Consequently, it looked like the stock market had stabilized. Additionally, shares were not blatantly overpriced. At 30.5 degrees, the local maximum was achieved, which is around 20% over the long-term average (Cogley 296). Through 1928, payments grew significantly, and shareholders expecting similar development rates in the future may have been prepared to tolerate dividend yields underneath the long-term average. During the first half of 1929, fiscal policy was inactive, and some experts suggest that this inertia was responsible for the subsequent events (Cogley 296). Nonetheless, three considerations are pertinent to the above-discussed statements.
As stated previously, price-dividend proportions had steadied and were progressively declining. It would have looked to a modern spectator that the acts of 1928 were producing the desired results. Second, it was abundantly evident that the global economy was decelerating, and many other nations had already suffered a downturn. Finally, the long-term effect on the stock values was that although monetary regulation was not getting more restrictive, it remained pretty restrictive. Short-term real interest yields remained at 6%, and the dollar’s value did not expand (Cogley 296). Before July 1929, price-dividend percentages continued to decline, but then values began to soar. The Fed increased the rate of return by another basis point to 6% in August (Cogley 296). The stock market reached its highest point during the first week of September. Notable is the fact that the peak price-dividend value was 32.8, which is significantly lower than in the 1960s and 1990s (Cogley 297). The decrease in stock values was relatively orderly until the end of October when the market plummeted.
Conclusion
In conclusion, due to the 1929 stock market meltdown in the United States, prices continued to plummet, and the country sank into an economic crisis. Women fared slightly better than males during the Great Depression since traditionally feminine occupations, such as education and nursing, were less susceptible to market fluctuations. During the Great Depression, life for the average family was also challenging. In addition, after a decade of unparalleled production and economic development, valuations of industrial companies trading at price-to-earnings ratios (P/E ratios) of more than 15 did not seem unreasonable. By 1929, thousands of power enterprises had been consolidated into investment organizations managed by larger corporate entities that dominated nearly two-thirds of the American industrial sector. Finally, the New York Fed took rapid and decisive action to ease credit requirements shortly following the disaster. When venture investors attempted to sell their equity stakes, several borrowers contacted brokerage firms to discuss their commitments.
Works Cited
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Bruner, Robert F., and Scott C. Miller. “The Great Crash of 1929: A Look Back After 90 Years.” Journal of Applied Corporate Finance, vol. 31, no. 4, 2019, pp. 43-58.
Cogley, Timothy. “Monetary Policy and the Great Crash of 1929: A Bursting Bubble or Collapsing Fundamentals?” Handbook of Monetary Policy. Routledge, 2020. pp. 293-297.
Cortes, Gustavo S., Bryan Taylor, and Marc D. Weidenmier. “Financial Factors and the Propagation of the Great Depression.” Journal of Financial Economics, vol. 145, no. 2, 2022, pp. 577-594.
Kyle, Albert S., and Anna Obižaeva. Large Bets and Stock Market Crashes. CEFIR, 2020.