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Comparing The 1929 Market Crash And The Current Position In The Stock Market

1478 words - 6 pages

Comparing the 1929 Market Crash and the Current Position in the Stock Market


During the 1920's, the North American economy was roaring, but this decade would eventually be put to a stop. In October of 1929, the stock market began its steepest decline to this date in history. Many stock market traders and economists believe and pray that it was a one-shot episode never to be repeated. On the other hand, many financial analysts and other economists believe that the current stock markets are in place to repeat the calamitous errors of the 1920's. In this paper, I will analyze the causes of the crash and discuss the possibilities of it re-occurring.
In 1914, World War I began. The United States intended on keeping out of the war, but by 1917, it was no longer just their exports involved, but their soldiers too. This struggle was financed by highly inflationary means and even though the U.S. involvement was limited in time, the postwar economy had to adjust to the lack of heavy military payouts. In 1919, after the armed forces were almost completely discharged, business activity took a sharp down fall. However, a postwar boom allowed for a quick rise in business activity that lasted about a year, taking us into the roaring 20's.
After the postwar inflation came a recession where business was bad, during the second half of 1920. The next year showed a drop in wholesale prices by a third, unemployment rose to nearly five million, industrial outputs dropped by a quarter, businesses were pushed to bankruptcy, and, within some time, hundreds of thousands of farmers were forced off their lands by falling farm prices. Produce such as wheat and wool fell in price by more than a half.
Industry eventually recovered, except for farmers, and then came prosperity and a developing economic boom. In 1923, consumers were finally spending more then they were before the peak of the war boom. Along came installment credit and people were rushing out to buy cars, radios, clothes, intending to pay for them later. A boom in residential housing began, as well as a general increase in manufacturing capacity. With residential growth expanding, construction items such as lumber, bricks, glass and nails underwent an 80 percent increase in consumption.
The 1920's saw a great technological advance. Mechanical power almost completely replaced manpower in the work force and output per man-hour almost doubled between 1910-1929.
At this point in the 1920's, American's believed that this soaring increase in the economy would go on forever. The United States had now become a world super power. People started investing in the stock market believing that
Using the Dow Jones Industrial Average (DJIA) at the beginning of every year as a measure, the economy has grown in a log-linear fashion since 1897. There have been two major oscillations in the DJIA.
The first major oscillation began in the early 1920s. In the period from 1924 to 1929 the DJIA rose from 100 to 300, just...

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