24 October 1929: The Wall Street Crash
On this day in 1929, otherwise known as 'Black Thursday', the Dow Jones Industrial Average fell sharply, and confidence in the banks collapsed.
In the 1920s, the US economy enjoyed a long period of rapid growth and high employment. This was partly down to technological innovation and migration from rural to urban areas. But it was also driven by the wide availability of credit.
By the late 1920s, stock prices were soaring, leading more and more people to pile into the market. Many had bought shares on margin' using only a fraction of the price as a down payment.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Storm clouds began to gather in the wider economy. Even as economic indicators started to point to recession, protectionist forces began pushing a plan to raise tariffs greatly. Investors started to panic about the possibility of a trade war.
Eventually, on 24 October 1929 Black Thursday' confidence snapped, leading toThe Wall Street Crash. The Dow Jones Industrial Average fell 11%. Leading bankers tried to calm things by pooling their resources to buy up shares. But prices had fallen so hard that those who bought shares on credit were forced to sell, flooding the market and driving prices even lower.
While the initial rout ended in November, the knock-on impact was huge people lost faith in the financial system and began to pull their money from banks.
The passage of the protectionist Smoot-Hawley Act in 1930 and the Fed's failure to stop the money supply from collapsing only made things worse. By the time the market finally hit rock bottom in the summer of 1932, it had fallen by nearly 90% from the high.
-
Student loans debate: should you fund your child through university?Graduates are complaining about their levels of student debt so should wealthy parents be helping them avoid student loans?
-
Review: Pierre & Vacances – affordable luxury in iconic FlaineSnow-sure and steeped in rich architectural heritage, Flaine is a unique ski resort which offers something for all of the family.
-
How a dovish Federal Reserve could affect youTrump’s pick for the US Federal Reserve is not so much of a yes-man as his rival, but interest rates will still come down quickly, says Cris Sholto Heaton
-
New Federal Reserve chair Kevin Warsh has his work cut outOpinion Kevin Warsh must make it clear that he, not Trump, is in charge at the Fed. If he doesn't, the US dollar and Treasury bills sell-off will start all over again
-
'Investors should brace for Trump’s great inflation'Opinion Donald Trump's actions against Federal Reserve chair Jerome Powell will likely stoke rising prices. Investors should prepare for the worst, says Matthew Lynn
-
'Governments are launching an assault on the independence of central banks'Opinion Say goodbye to the era of central bank orthodoxy and hello to the new era of central bank dependency, says Jeremy McKeown
-
Do we need central banks, or is it time to privatise money?
Analysis Free banking is one alternative to central banks, but would switching to a radical new system be worth the risk?
-
Will turmoil in the Middle East trigger inflation?The risk of an escalating Middle East crisis continues to rise. Markets appear to be dismissing the prospect. Here's how investors can protect themselves.
-
Federal Reserve cuts US interest rates for the first time in more than four yearsPolicymakers at the US central bank also suggested rates would be cut further before the year is out
-
The Bank of England can’t afford to hike interest rates againWith inflation falling, the cost of borrowing rising and the economy heading into an election year, the Bank of England can’t afford to increase interest rates again.
