It has been decades since I looked at the events of 1929 . Thank you for a damn fine refresher.
The funny thing is, most people have the actual collapse wrong.
First of all, it was not even the first crash. The London Stock Market had a similar crash the month before, this was over a month afterwards.
And since July, analysts had been stating that the market had likely peaked, and had actually been on a slide since then. But there were 2 things that made this worse than expected. Today, we would say that what had happened was a "bubble", and as we now know all to well, it was about to pop.
The crash the month before of the London Exchange had caused a lot of people to start pulling out their money, and those that had been buying stocks on credit were worried, as they might not be able to make their call at the end of the month. Also many were invested in commodities as well, which had to be sold off by the end of the month. But while they had not crashed, commodity markets were flat. So without that as a way to recoup their losses many "doubled down" in stocks.
So we had a perfect storm. Bank notes (or at least the interest on them) coming due, a flat commodities market, and people that were leveraged to the hilt desperate to get their money back out. And on top of that people saying things were already past peak and dropping in price. That made 24 October the tipping point. People started to sell, which caused prices to dip, causing more sales. It soon turned into a panic, then a route. Prices were pushed down more, triggering more sales. And by the time it was done, the market dropped 10% in a single day.
And at the time, the experts were not worried. Nobody jumped from buildings, there were no mass suicides. The market just considered this to be the correction that they had been expected, and on Friday trading was light, but actually fairly stable. But on Monday, panic set in again, and it dropped 13%. This time full blown panic set in, and on Tuesday, it dropped another 12%. Over 35%, in less than a week. And the next day, another 11%. The DJIA dropped from 381.2 in September, to 299.5 the day before the crash. By 28 October it was at 230.7. It rebounded the next day to 260.5, then began a long slow slide that by 12 November was at 199.0.
And things just continued to slide like that. People lost their trust in the market, so pulled their money and put it into other things. Banks were the main place to hold money. But by 1931 companies were producing less because people were not spending their money. This then snowballed. Companies laid off people, which caused even more to save what they had. Companies started to go belly up, and banks lost the money they had loaned them. More companies needed loans, but the banks were already overextended and could not give the loans. People started to pull their money out, either to live off of, or looking to put it into more scure storage, like gold and silver. Banks now had negative liquidity, and started to fail.
The Great Depression was not any one thing. And it was hardly local, every nation on the planet suffered, from Germany and England to China, Argentina, and the US. And it took months for the experts to realize what had happened.
Myself, I love this period in history, because it shows how little most people understand how this crash worked, and how any crash works. I have seen many bubbles over the decades, and even predicted 2 of them. The "Dot Com" was one of the funniest, as for years I had told people it was a bubble and they ignored me, because the stock prices kept going up and up. Then it popped, and I actually knew people who were "Dot Com Millionaires" who suddenly had nothing. And they could not even hope to recoup their money at the bankruptcy sale, all those companies owned was all to often just office equipment, and a warehouse that they trans-shipped out of. Not even much actual inventory to sell, they had become experts in JIT inventory control.
And this also causes one of my most fun examples which shows how little people understand the stock market, or the crash. I challenge people to tell me how much money was lost on that day, and they always give funny answers. 100 million, 100 billion, and they always look stunned when I told them no money was lost. When I sold somebody $1,000 in stock a few months before and then it became worthless, the money did not vanish. It is still right in my pocket, where I put it when they gave me their money.
They lost $1,000, I did not. They money did not vanish, it is just not their money any more.