The birth of the vampire
86 years ago, with “Black Thursday” on the New York Stock Exchange, the Great Depression
October 24, 1929 there was an event whose significance can not be overestimated, “Black Thursday”, the collapse of the New York Stock Exchange that resulted in the Great Depression – the most famous economic crisis of the last few centuries. 86 years – the date of non-round; however, and the event is not one of those that decided to celebrate picnics and evening fireworks.
Nevertheless, there are many reasons to believe that it was the Great Depression made the United States the government, what we know now. Let’s see how it was.
Shareholders – housewives and shoeblacks
To begin, find out how the height of America fell into an economic abyss, how prosperous were the 20s for her.
World allowed States not only pay off your debts, but also give European allies loans to 11 billion dollars (purchasing power of the dollar was in the 1920s, 12.2 times higher than now). Military orders spurred growth in real sectors: in the early 1920s in the United States, accounting for 50% of global production of coal, about 60% iron and steel 75% oil.
As the allies paid a significant portion of the supply of gold, States have accumulated in their vaults for almost half the world’s supply of precious metals. US investment abroad increased from 2.6 billion to 7 billion. In fact, American investors have bought up most of the fields in Latin America and the Caribbean.
Economic growth has led to a significant increase in welfare part of the population. Formed the middle class in the current sense of the term. Of course, enterprising Americans could not help but start to invest free funds in securities and exchange transactions, for the benefit of all the conditions were: a huge number of stock exchanges, professional brokers, growing profits of tens of thousands of companies. Shares bought everything working and movie stars, shopkeepers, clerks and housewives. Known banker and financier John Pierpont Morgan recalled that a few weeks before the stock market crash street shoe shiner asked him whether the shares will bring the railway company profits he bought.
The average American could not imagine that this celebration of life will soon be over.
Margin Loans: trigger catastrophe
By the end of the 20s the inertia of post-war recovery has weakened. Available markets have been exhausted, the productivity of labor has ceased to grow, and the effectiveness of investment began to fall. Brewing crisis of overproduction, taschivshy of a deflation. At first, the Americans have stopped buying a house, and then cars.
However, it was only the macroeconomic background of the coming crisis, has little effect on the behavior of market participants. Hereby trigger a financial catastrophe were shares of margin loan.
A feature of these securities was that they could be bought for just 10% of the nominal value. The outstanding 90% is kind of credit issued by the brokerage house to his client. Due to this, even rather poor clerks could play the stock market with significant assets. But the devil, as always, the wings in detail. The agreement had a clause that allowed the broker to require the holder of the securities to make the missing part of the value of shares in 24 hours.
The fact that brokers massively took loans from banks to buy securities, stock exchange made apparent prosperity is even more tenuous. Acceptable collateral existing portfolios of stocks and bonds.
Thus, millions of Americans (according to some estimates – almost all the able-bodied population of the US) in one day were hooked on brokerages. And those, in turn, are in exactly the same position with respect to the banks.
October 24, 1929 several banks suddenly stopped issuing loans to brokers for more than one day. This caused speculators to sell the purchased shares in the debt to pay off loans, or face the loss of all assets.
Already by 11 o’clock in the morning, an hour after the opening of trading on the New York Stock Exchange, Wall Street panic. This day proved sold 12.6 million securities: some players still had the means to buy the shares becoming cheaper. Himself vice president of Exchange Richard Uitni, trying to salvage the situation, a few hours spent nearly $ 250 million for the purchase of “blue chips”. It must be admitted that he almost managed to stop the panic. Nevertheless, the business activity index of the Dow Jones by the end of trading dropped by 11%. Financiers and newspaper people immediately called the day “Black Thursday”, not yet knowing that in the context of subsequent events it will look light gray.
On Friday, however, the situation is not corrected. Brokers dumped on the market for 30 million shares. Flywheel panic gradually unwound and snowballing financial meltdown already being swept down, growing before our eyes. He was born the term “Black Friday”, and I must admit that a shade of gray, and really thickened.
The downtrend continued and after the weekend. It is in the Monday, October 28, the stock exchange finally went into an uncontrolled dive. If the first two days of big bankers still tried to play on the stock falling, now it was not the question. In the US calendar will be two black day of the week – Monday and Tuesday.
The first wave of bankruptcies, followed by suicide. One of the first victims of the collapse of Wall Street bankers steel shot and killed Dzheyms Riordan and Dzhessi Livermor; then a great response received a double suicide clerks who had a joint brokerage account: holding hands, they jumped from the roof of a skyscraper. In the following weeks, in the words of the famous American comedian Eddi Kantora, the hotel administrators in the habit of asking the new guests, “you room to sleep or jump?» (For sleeping or jumping?).
By the end of the week, the US stock market has lost $ 30 billion – more than the United States spent the entire First World War.
nuclear explosion effect
It is unlikely that the collapse of the stock exchange was originally conceived as an unmanaged process. Most likely, the organizers had planned to buy on the cheap the most attractive assets with subsequent correction. However, the genie out of the bottle and began to live their own lives.
Bearing losses banks started closing credit lines to enterprises. Citizens who have lost on the stock exchange of the savings (of whom there are at least 25 million), rushed en masse to withdraw funds from deposits. Banks are faced with a lack of liquidity; lack of funds led to the bankruptcy, and those, of course, fueled panic among the population. Spiral shortage of means of payment, the requirements to fulfill the obligations and bankruptcies untwisted wider and eventually killed 16 thousand of credit institutions.
The bearish trend has spread from the securities market for a commodity exchange: November 5, there was a collapse in the price of wheat. During the bidding its price has fallen to almost zero, nobody wanted to buy cereal. A week later, the same way the price of cotton collapsed.
Blast Wave stock exchange collapse of expenses for the US economy, sweeping away one segment after another. The collapse of the banking sector has led to the massive devastation of enterprises. Over the next few years we have undergone bankruptcy 135 747 enterprises and firms. 19 railway companies went bankrupt. Stay on his feet businessmen went on ways to reduce costs and have begun layoffs than at the root slaughtered consumer demand, and with it their own future.
15 million Americans – 18% of the population – lost their jobs. By 1932, the number of unemployed has increased to 17 million; 60 million more have part time. And only 10% of the population of 125 million of the country could boast of full-time jobs.
Crisis has reached agriculture: 5 million farmers were left without land, failing to pay taxes or pay off debt. The situation was paradoxical: in the cities of millions of Americans suffering from hunger, and there was none to farmers to sell milk, meat, fruits and vegetables. Victims of hunger during the Great Depression began about 7.4 million people. The newspapers reported that the residents of small towns began to eat grass, shoot dogs and squirrels.
Bitter pills, or a large redistribution of America
In 1932, President Herbert Hoover was replaced by Franklin Delano Roosevelt. Having inherited the Great Depression, he immediately took the path of strict state planning. Realizing that the treatment of the economy requires the most radical means, he was ready to use them.
Roosevelt’s program, dubbed “New Deal”, the subject of hundreds of monographs and textbooks plus one investigation of the US Supreme Court. Judges retroactively recognized the economic policy of the president is completely unconstitutional. And – as it completely justified.
Roosevelt devalued the dollar and declared a state bank holiday. This was necessary so that the citizens did not remove deposits, while their savings are not depreciated. Americans were forbidden to own monetary gold: all the bars and coins were ordered to hand over the government to the May 1, 1933. Trying to hide a piece of precious metal threatened to ten years in prison. It is noteworthy that under Roosevelt State redeemed gold at 20.66 dollars per troy ounce. Returned the same to Americans ownership of the yellow metal only in 1975 when an ounce cost is already $ 195. ’42 the most democratic country in the world deprives citizens of the right to invest the savings into an asset, not subject to aging, wear and tear and depreciation.
War as a lifeline
In parallel, there was a process of consolidation of the banking system: the surviving big banks buying up small and medium-sized credit institutions. I do not stay aside and the Federal Reserve, which began to lend to partner banks. The state held a separation of commercial and investment banks, highlighting the direct loans to industrial and transport companies. Farmers have been restructured debts and partially charged. The course was taken to reduce unemployment and create jobs. Roosevelt and his team managed to reduce the decline in GDP, increase employment of the population and stabilize the financial system.
However, the effect of all these measures remains unstable. In 1937, the president tried to balance the budget, cut spending – and the United States immediately covered the second wave of recession.
It is difficult to say how much the crisis will last, if not the Second World War. Huge military orders, and then crushed into dust help Europe allowed the US economy to restore sustainable growth. However, it was quite not the economy that collapsed 15 years ago in the hell of the Great Depression.
America needs your hemoglobin
States learned to macroeconomic policies, to realize the harmfulness of deflation and learn to manage the money supply. The collapse of the colonial system of Britain opened American producers previously inaccessible markets, and the dollar approval as a global currency allowed to start exporting the money supply, while minimizing the risks of inflation issue. Democratic power has learned to live in debt, to stimulate the production expectations of rising consumption and lend to its citizens for decades to come.
But the main thing – the American politicians and financiers finally realized the immense power and significance of the war as an effective doping and fuel for its economy. Since then, more than half a century, America is alive and growing thanks to the policy of “small victorious war”. Hardly another decline is planned in the country – the authorities already know what to do. Pretentious rhetoric of another war boosts share prices of companies associated with the military-industrial complex; on expectations of military orders rising commodity prices for metals and oil, and in the manufacturing sector directs the life-giving flow of dollars.
The United States chose the path is not a phoenix, but a vampire: a clever, ruthless, able to fly and, most importantly, the immortal for as long as you can feed off other people’s hemoglobin. It is in the “Black Thursday” on October 24, 86 years ago, began the degeneration of the ordinary capitalist state in the global superhischnika.
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