The Great Depression: timeline, causes and parallels to today
A stock market crash, waves of bank failures, a declining M2 money supply & massive deflation - all are hallmarks of the Great Depression. Some of these same hallmarks have reappeared today.
In this research piece I provide a timeline of the period covering 1929-1933, beginning with the period leading up to the stock market crash of 1929, through to the reopening of banks in 1933 following a nationwide bank holiday. Finally, I compare and contrast this period to the present day economic situation — let’s begin!
1929: the stock market crash
The year is 1929.
The Dow Jones Industrial Average has risen just under 6x from its August 1921 closing low of 64, to its September 1929 high of 381, with much of the growth propelled by purchases made on margin loans.
In a bid to temper the stock market mania, the Federal Reserve has been warning against stock market speculation. Its actions have been louder than just words, with the New York Fed drastically increasing the discount rate from 3.5% in January 1928, to 6.0% in September 1929.
Though as opposed to seeing stock market growth ease, the mania powered on in spite of the Fed’s actions, with the Dow rising 59% in the year to its September 3, 1929 high.
Indeed, it seemed like nothing could stop the precipitous rise of the stock market. Well-known economist Irving Fisher went as far as to say that “stock prices have reached what looks like a permanently high plateau”.
Not even an economic recession, which began in August 1929, and which was spurred in part by the Fed’s aggressive tightening, could immediately temper the wave of enthusiasm.
For the time was one of boundless optimism. A time of technological revolution, economic growth and vast changes in daily life. Electrification continued to spread. Automobile and telephone adoption continued to grow. Major advances were being made in aviation. The radio was being mass produced. Talking pictures were being produced and cinema attendance soared.
Amidst such a backdrop, President Calvin Coolidge’s December 1928 State of the Union address encapsulated the mood of the nation:
“No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment, harmonious relations between management and wage earner, freedom from industrial strife, and the highest record of years of prosperity. In the foreign field there is peace, the good will which comes from mutual understanding, and the knowledge that the problems which a short time ago appeared so ominous are yielding to the touch of manifest friendship. The great wealth created by our enterprise and industry, and saved by our economy, has had the widest distribution among our own people, and has gone out in a steady stream to serve the charity and the business of the world. The requirements of existence have passed beyond the standard of necessity into the region of luxury. Enlarging production is consumed by an increased demand at home and an expanding commerce abroad. The country can regard the present with satisfaction and anticipate the future with optimism.”
It seemed as if the good times would continue to roll on and on … that is, until late October.
For in spite of the wave of optimism and technological advances, the boundless optimism and speculative stock market mania would came to an abrupt halt.
On October 24, stocks began the day by recording wholesale declines, with total sales volume on the New York Stock Exchange breaking all prior records by 1:30pm.1 At the trough, the Dow Jones had fallen 11%.2
Amidst the turmoil, leading bankers began to meet at the offices of J.P. Morgan & Co. They issued reassurances and sent Richard Whitney, Vice President of the New York Stock Exchange, onto the floor of the New York Stock Exchange to deliver a series of major bids. In turn, the prices of many leading stocks rebounded sharply.34 By the end of the day, the large intraday losses were largely recouped, with the Dow ending down 2.1%.5
Though the stabilisation didn’t last long.
On October 28 (Black Monday), the Dow declined 13% amidst a flurry of trading activity and margin calls.
The following morning, on October 29 (Black Tuesday), hundreds of individuals could be seen entering large brokerage houses, bearing checks, cash and stock certificates, in an effort to shore up their collateral.6
To help support the market, shortly after 11:00am, J.P. Morgan & Co. announced that in association with other leading New York financial institutions, that margin requirements would be reduced to 25 per cent.7
While the market ended the day above its lows, the measures didn’t stop another huge decline. On Black Tuesday, the market declined another 12% — at its low, the Dow was down 18.5%.8
Very quickly, insatiable enthusiasm turned to panic and despair.
Many saw their positions wiped out, being unable to meet margin calls.9
The selling wave would see the market reach a temporary bottom on November 13, 1929, down 48% from its September high. The Dow would go on to rise 48% by April 1930 — though another downturn, this one being even larger, lay in wait.
With a series of bank runs following over the next few years (as explained below), the Dow Jones would not ultimately bottom until July 1932, at 41 points, down 89% from its September 1929 high.
