REAL WORLD EVENT DISCUSSIONS

What cause the 1929 crash?

POSTED BY: DREAMTROVE
UPDATED: Friday, August 25, 2006 12:06
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Thursday, August 24, 2006 4:07 PM

DREAMTROVE


Signym pointed out that I had the wrong date on the hoover tax hikes, and so they couldn't have cause the crash of '29, being as they were in '32.

Which opens a can of worms. What did cause it?

Also, what caused the crash of 2000? I suspect the parallel here is that it's the same thing all over again.

Also, I think that the root causes are the causes of the depression which followed. I think I'll dodge the question "are we living in the second great depression?" because mathematically we must be, even if it doesn't seem like it.

But what was the cause, or causes, and what played the largest part?


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Thursday, August 24, 2006 4:09 PM

DREAMTROVE




Just thought that was intresting, I thought I'd throw it out there.

I want to nominate Boom-bust as part of it, both crashes had overzealous run-ups before them.

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Thursday, August 24, 2006 4:17 PM

DREAMTROVE




I believe this is federal spending as a % of gdp.

I'm still getting nowhere. I like my simple wrong explanation better.

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Thursday, August 24, 2006 4:20 PM

DREAMTROVE




The market crash of 1929



The market crash of 2000

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Thursday, August 24, 2006 4:21 PM

FREDGIBLET


Quote:

Originally posted by dreamtrove:
Signym pointed out that I had the wrong date on the hoover tax hikes, and so they couldn't have cause the crash of '29, being as they were in '32.

Which opens a can of worms. What did cause it?

Also, what caused the crash of 2000? I suspect the parallel here is that it's the same thing all over again.

Also, I think that the root causes are the causes of the depression which followed. I think I'll dodge the question "are we living in the second great depression?" because mathematically we must be, even if it doesn't seem like it.

But what was the cause, or causes, and what played the largest part?




Simple. People bought low, the market swung up they sold high, the market swung down. This reapeated several times getting more and more exaggerated, then the major players in the stock market got scared and stayed out, the market bottomed out and stayed down. Over the next few days or weeks the economic effects took hold and the depression became self-sustaining.

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Thursday, August 24, 2006 4:24 PM

DREAMTROVE


Fred

I don't buy it. I thought about this possibility, but depression isn't invented out of air, neither is market. If people buy and sell, they shouldn't create debt.

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Thursday, August 24, 2006 4:29 PM

FREDGIBLET


Forgot to add, most of the people were buying stocks on credit.

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Thursday, August 24, 2006 4:37 PM

DREAMTROVE


Well, one thing's clear: Wars create national debt.

This was interesting



There has been a taxburden shift in corporate america from the profits to the payroll. This seems extremely regressive to me, instead of taxing the most successful corporations, we are now taxing the ones with the most workers

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Thursday, August 24, 2006 4:40 PM

DREAMTROVE


In 1929, at the time of the crash, 2% of shares were held on margin. That's not statistically significant. It wasn't in 2000 either. That's been a punching bag of blame for a long time, but I think it's a red herring.

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Thursday, August 24, 2006 4:46 PM

FREDGIBLET


All right, maybe I'm wrong on that, but as for creating debt how's this sound:

You put all your money into the stock market (because you keep hearing that your friends are making tons with it). The stock market crashes with all your money in it, you get fired because the company you work for lost a lot of money (in the stock market), you borrow to stay alive. Debt is created.

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Thursday, August 24, 2006 4:49 PM

FREDGIBLET


Quote:

Originally posted by dreamtrove:
Well, one thing's clear: Wars create national debt.

This was interesting



There has been a taxburden shift in corporate america from the profits to the payroll. This seems extremely regressive to me, instead of taxing the most successful corporations, we are now taxing the ones with the most workers



Because the ones with high profits and few workers can afford lobbyists to get politicians to swing things in their favor.

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Thursday, August 24, 2006 4:56 PM

DREAMTROVE


Fred,

You're getting closer, I thought of that, the boom may have caused some spending which wasn't warranted, but I haven't found the spending.

Joe schmoe doens't move enough money for his personal finances to be important to either the market or the economy. I know that a crash happens because people are already short of cash, and so they sell. Then fear takes over. But it has to be large scale money. Once the capital has dried up, the depression is a result of the lack of jobs caused by the no capital to hire anyone. But the part I don't get is where the lack of capital is coming from.

There was federal spending, but it doesn't seem to be the only culprit here. Maybe there was more corrupt spending, or federal borrowing, or corporate embezzlement, or perhaps the govt. was printing extra bills. Maybe foreign concerns were an issue.

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Thursday, August 24, 2006 5:04 PM

FREDGIBLET


Quote:

Originally posted by dreamtrove:
Once the capital has dried up, the depression is a result of the lack of jobs caused by the no capital to hire anyone. But the part I don't get is where the lack of capital is coming from.



Simple, all the companies were investing too, they lost out on the stock market just as much as everyone else. The companies have no money to hire people, the people have no money to spend on the products, the companies that produce the products lose more money as their products sit on shelves.

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Thursday, August 24, 2006 5:15 PM

DREAMTROVE


Fred

Still doesn't make cash flow sense. money must somehow disappear. maybe it left america. Germans would have to sell american stock in order to pay their bills, or the war debt, which collapsed their own economy.
Did arabs sell stock in 2000?

This is an idea. If you have a large-scale devestment in america taking place, this would percipitate a stock market crash.

What this theory lacks is evidence, not that I have evidence to the contrary, but where do you find this data?

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Thursday, August 24, 2006 5:23 PM

DREAMTROVE


Quote:

The 1920's were a time of unbelievable prosperity. The stock market was going through the roof and the United States seemed to have the formula for limitless prosperity. However, the same formula that generated all of that profit would also be the cause of Black Tuesday.

Investment during the 1920's was based on the unstable basis of margin buying. Investors bought borrowed money from their brokers, who went to banks for that money. When stocks failed and investors needed to default, the money was permenantly lost.

However, adding to the crash of '29 was the slowing economy. The desire for consumer durables (expensive items refrigerators, radios, and automobiles) went down as Americans became satisfied with what they had. This in turn affected the companies and workers that produced these items. A downward spiral was set in motion.



Like all official stories, this one keeps the kids quite. It doesn't however make any fiscal sense, when the numbers are considered.

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Thursday, August 24, 2006 5:23 PM

FREDGIBLET


Quote:

Originally posted by dreamtrove:
What this theory lacks is evidence, not that I have evidence to the contrary, but where do you find this data?



Memory of history class, mostly.

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Friday, August 25, 2006 6:25 AM

SIGNYM

I believe in solving problems, not sharing them.


This is from a previosu FF thread on unemployment.
Quote:

Here is a large set of data showing income distribution in the USA since 1900. If you look at the top 0.01% (for example) you will see that the current distribution is approaching levels not seen since 1928. www.nber.org/data-appendix/w8467/w8467-app.pdf

Unfortunately, it's a pdf file, so I can't copy it here.


I've been thru this discussion before, but I'll go thru it again.

An economy "works" when money changes hands. It doesn't matter how much money is in a society, if it's static- if everyone has it stuffed into a mattress- there is no economic activity. But money behaves oddly- it doesn't naturally flow from wealth to poverty but from poverty to wealth. Without intervention money concentrates over time as many small businesses are crowded out by monopolies and the wealthy use their money (and "work" the system) to become wealthier. In fact, it is a permanent fixture of capitalism, which is defined by the accumulation of wealth in the form of profits.

So what happens when only a very few have accumulated much wealth? Most people make the mistake of thinking that an economy is pushed by investment instead of pulled by demand. They feel that if businesses and wealthy people were "investing" the economy would improve. But a business (or a person) doesn't invest w/o the hope of customers. It makes no sense to build a new automobile factory if nobody's buying cars. So if a business- or a person- has spare cash but no anticipated demand, they will simply use that money to either buy up the competition (increase market share) or to speculate in diamonds, gold, tulip bulbs or other non-productive items.

The inescapable conundrum of mature capitalism is that it concentrates money very quickly, and dries up it's own markets by impoverishing the average person. The trick to keeping the economy going is to keep trickling money into the poorer segments so they can keep buying food and refrigerators and cars and computers and all the stuff that factories and farms keep churning out. One way to do this was to have the government make money- literally- and place it in the hands of the avergae person: grow the money supply. Inflation as the cure to depression. (Keynes) The government has used some form of monetarism ever since to keep the economy on an even keel.

Except for GW Bush, who's really sweeping money towards the weatlhy.

---------------------------------
They support a system they don't even understand.

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Friday, August 25, 2006 12:06 PM

CANTTAKESKY


Economics is my weakest subject as I have spent very little time reading it. Your explanation makes a lot of sense to me, Sig. Thanks.

I think there is another way to address the conundrum of "mature capitalism"--besides having the govt trickle money to the poor. Break the monopolies with new technology. It doesn't matter if Bob has a monopoly on all the horses and carriages in the country if Bill just invented a car. Then Bill gets a monopoly on cars until Chuck invents motorized flying bicycles. And so on.

The trick in a highly regulated society is surviving with new technology. There are so many legal hoops to jump through and patents can be afforded by only the rich. The rich have already bought the government and made it legally impossible for the next garage inventor to put them out of business.

We need to make it easier for new technology to rise. For example, technology for alternative fuels is out there, but it is almost impossible to get a company up and running against the oil giants, who are in league with the car giants, etc.

DT, sorry about the digression from your thread. I can't comment on 1929 cause like I said, I know zilch about economics.

Can't Take My Gorram Sky

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