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Do you believe that a stock market crash, like that of 1929, is forthcoming given todays inflation, over extension of credit -mortgages, school loans, cars, etc..?
If not, what is protecting us now that didn't provide protection in the 1920s and 1930s?
That's not what happened.
Do you realize stocks set record highs during the 1925 Recession? The slid a little after the recession ended, but when the 1928 Recession started, stocks started setting record highs again.
When the 1928 Recession ended in June 1929, stocks started to slide, then slid a lot in September, and had a huge slide in October 1929.
There were a lot of banks back then, thousands and thousands of banks. It wasn't uncommon for a city with a population of 500,000 to have 40-50 banks back in 1920s. That same city today only has 6-7 banks by comparison.
Banks started granting loans for the express purpose of buying stocks. Some loans were unsecured, some were secured (with collateral). People would borrow $1,000 to $5,000 which doesn't seem like a lot, but remember the average wage in 1930 was only $1,300/year, then buy stocks, sit on them for 90-180 days, sell the stocks for a massive profit, which was easy to do since the stock market was setting record highs during the 1928 Recession, pay off the loan, keep the balance, then go get another loan and do it all again.
When the stock market crashed, the stocks were worth less, or worthless. Those people couldn't pay back the loans, so the banks lost the money on both unsecured and secured loans.
Why? Because you can't seize collateral the day after, and if you aren't the first perfected creditor, then you don't get anything. So, if another bank issued the primary mortgage, and your bank issued a second mortgage to buy stocks, you're a secondary perfected creditor, and you get nothing, because it all goes to the first perfected creditor. Your best hope is that person files bankruptcy, and that the property appreciated in value, because then the first perfected creditor is paid off in full, and you get the difference between the mortgage and the appreciation, which ain't gonna be much, and it certainly won't pay off the loan.
Even if you managed to seize the property after 6 months of legal wrangling, all you have is property, not cash. You have to sell the property to convert it to cash, and you can't sell the property if no one is buying, and even if someone would be willing to buy, banks don't have the cash to make the loan, so you're screwed.
Not only do banks not have money to loan out, they don't even have enough money to cover their deposits (and remember there's no FDIC yet, so you can't recover your deposit if the bank fails).
And, now you have depositors demand their deposits for one reason or another, so you have even less money to loan out, and then you don't even have enough money to operate, so you close your doors.
A little over 9,000 banks failed between 1930-1939. About 3,000 failed between 1930 and the banking holiday in 1932.
That's your credit crunch.
Businesses then operate the same way they do today. You have a revolving line of credit with a bank, you borrow money to buy raw materials and semi-finished goods to produce semi-finished or finished goods for sale, and the revenues from the sales pay the wages of your employees, your operating expenses, and pay off the money you borrowed and whatever is left over is your profit (before taxes if you're a corporation).
It's kind of hard to borrow money if your bank doesn't have the money, or you bank is closed. You'll have to find another bank (good luck with that) or shut down.
If the Federal Reserve had acted more quickly, and pumped money into the failing banks, it would have helped, but not ended the problem, because on top of that, you already had structural unemployment.
I have a sneaking suspicion that one reason the Federal Reserve didn't act in a timely manner, is that it wanted the larger banks to absorb the smaller banks, and this was an easy way to make that happen.
Equipment modernization and changes in manufacturing methods created massive unemployment.
You have 12 guys in your furniture factory producing legs for chairs and tables on manual lathes operating a foot-treadle. You buy two electric lathes, and now you only need 2 guys to do the work that 12 guys did. And, instead of having guys assemble chairs and tables piece-meal by hand, you put them on an assembly-line, and you need fewer guys to produce the same number of chairs and tables.
Unemployment had been piling up for quite a few years, and now you have more unemployed people, because businesses are shutting down since there's no money for businesses to operate.
During the 1960-1961 Recession, the stock market broke record highs, too.
Then you have stocks crashing for nearly three years losing 49% of value, while the economy cranked out 8% to 12.5% per quarter.
And, then you have another crash lasting over 2 1/2 years losing 42% of value, where the economy chugged along at 2.5% to 5% per quarter. That was in the 1970s.
As you can see, there's no relationship between the stock market and the economy, and stocks have no bearing on the economy. You have to understand that only 3% of all US businesses are corporations and they only employ a small fraction of the total work-force, about 5.8% or 9 Million workers (out of well over 150 Million workers).
When the primary or secondary cause of a recession is Capital reallocation, stocks normally set record highs during the recession then crash after the recession ends.
Location: Was Midvalley Oregon; Now Eastside Seattle area
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Jmo. Over reliance on the top capitalized companies that make up the SP500, Dow Industrials. Nothing wrong with these companies or their products, it's their high PE.
The implications of all that QE-money, extended ZiRP, program after program to save the country from
the so-called "great recession"............nobody really knows what the results are going to be!
I know. We have lived beyond our means for a very long time and now finaly the piper needs to be paid. Bernanke's handouts to Wall Street in 2009 were theft from the taxpayer. Bernanke just delayed (didn't fix anything) the inevitable DEFLATION by borrowing trillions from the future to spend today. Bernanke willfully DELAYED the necessary Deflation so that someone else would get the blame. Now we have even MORE debt to destroy than we did in 2001 or 2008, which is the goal and point of the Deflation Seasons. We did not do our job from 2001-PRESENT. So we may have to do it now. Which means we COULD get the great Deflation Cycle that Bernanke et al refused to confront head-on.
The upcoming great depression COULD be much worse then the one in 1920's. You need to be prepared that we may have a civil war or world war as well.
Do you believe that a stock market crash, like that of 1929, is forthcoming given todays inflation, over extension of credit -mortgages, school loans, cars, etc..?
If not, what is protecting us now that didn't provide protection in the 1920s and 1930s?
Now, there is the Securities and Exchange Commission and a host of other safeguards to protect us from a Crash of '29/Great Depression. Closest we've got to that was in 2008 and the energy crisis/stagflation of the late 1970s/early 1980s. Also there are regulations to protect consumers against bank failures that weren't in place back then. People lost 50 years worth of savings during the bank failures that followed the Crash of '29. The market took a bigger single-day dive in October 1987 than in '29 and though there were major losses, our economy survived.
on a dollar basis , the stocks market actually recovered in only 4-1/2 years from the collapse .
dividends were running 18% in some cases and the raw market numbers did not include dividends . many highly popular stocks like ibm were not in the index's at the time and they did pretty well . the cpi fell 18% so real returns acted the opposite of what they typically do .
there was no fixed membership in the dow . it varied all over the place so you could not compare what was to what is .
instead of real returns being less than nominal , in this case real returns were greater than nominal . in fact by the time the numbers were the same again , you were way way a head in real return .
so despite the nominal numbers looking like the took a long long time to recover , the fact was you were whole again dollar wise in 4-1/2 years .
Do you believe that a stock market crash, like that of 1929, is forthcoming given todays inflation, over extension of credit -mortgages, school loans, cars, etc..?
If not, what is protecting us now that didn't provide protection in the 1920s and 1930s?
Ahh yes...1929.
“Most people thought of Hitler as too radical....if they thought of him at all. But in less than 3 months...Wall Street would crash...and take the German economy down with it. Within a year, the Nazis were the largest political party in Germany. As we descended into misery and called anxiously for a savior. He emerged, like a mountain. Now, drums beat, columns march, and 100,000 people stand firmly gathered around one man. Build up your people oh master, a great fatherland awaits”.
Do you realize stocks set record highs during the 1925 Recession? The slid a little after the recession ended, but when the 1928 Recession started, stocks started setting record highs again.
When the 1928 Recession ended in June 1929, stocks started to slide, then slid a lot in September, and had a huge slide in October 1929.
There were a lot of banks back then, thousands and thousands of banks. It wasn't uncommon for a city with a population of 500,000 to have 40-50 banks back in 1920s. That same city today only has 6-7 banks by comparison.
Banks started granting loans for the express purpose of buying stocks. Some loans were unsecured, some were secured (with collateral). People would borrow $1,000 to $5,000 which doesn't seem like a lot, but remember the average wage in 1930 was only $1,300/year, then buy stocks, sit on them for 90-180 days, sell the stocks for a massive profit, which was easy to do since the stock market was setting record highs during the 1928 Recession, pay off the loan, keep the balance, then go get another loan and do it all again.
When the stock market crashed, the stocks were worth less, or worthless. Those people couldn't pay back the loans, so the banks lost the money on both unsecured and secured loans.
Why? Because you can't seize collateral the day after, and if you aren't the first perfected creditor, then you don't get anything. So, if another bank issued the primary mortgage, and your bank issued a second mortgage to buy stocks, you're a secondary perfected creditor, and you get nothing, because it all goes to the first perfected creditor. Your best hope is that person files bankruptcy, and that the property appreciated in value, because then the first perfected creditor is paid off in full, and you get the difference between the mortgage and the appreciation, which ain't gonna be much, and it certainly won't pay off the loan.
Even if you managed to seize the property after 6 months of legal wrangling, all you have is property, not cash. You have to sell the property to convert it to cash, and you can't sell the property if no one is buying, and even if someone would be willing to buy, banks don't have the cash to make the loan, so you're screwed.
Not only do banks not have money to loan out, they don't even have enough money to cover their deposits (and remember there's no FDIC yet, so you can't recover your deposit if the bank fails).
And, now you have depositors demand their deposits for one reason or another, so you have even less money to loan out, and then you don't even have enough money to operate, so you close your doors.
A little over 9,000 banks failed between 1930-1939. About 3,000 failed between 1930 and the banking holiday in 1932.
That's your credit crunch.
Businesses then operate the same way they do today. You have a revolving line of credit with a bank, you borrow money to buy raw materials and semi-finished goods to produce semi-finished or finished goods for sale, and the revenues from the sales pay the wages of your employees, your operating expenses, and pay off the money you borrowed and whatever is left over is your profit (before taxes if you're a corporation).
It's kind of hard to borrow money if your bank doesn't have the money, or you bank is closed. You'll have to find another bank (good luck with that) or shut down.
If the Federal Reserve had acted more quickly, and pumped money into the failing banks, it would have helped, but not ended the problem, because on top of that, you already had structural unemployment.
I have a sneaking suspicion that one reason the Federal Reserve didn't act in a timely manner, is that it wanted the larger banks to absorb the smaller banks, and this was an easy way to make that happen.
Equipment modernization and changes in manufacturing methods created massive unemployment.
You have 12 guys in your furniture factory producing legs for chairs and tables on manual lathes operating a foot-treadle. You buy two electric lathes, and now you only need 2 guys to do the work that 12 guys did. And, instead of having guys assemble chairs and tables piece-meal by hand, you put them on an assembly-line, and you need fewer guys to produce the same number of chairs and tables.
Unemployment had been piling up for quite a few years, and now you have more unemployed people, because businesses are shutting down since there's no money for businesses to operate.
During the 1960-1961 Recession, the stock market broke record highs, too.
Then you have stocks crashing for nearly three years losing 49% of value, while the economy cranked out 8% to 12.5% per quarter.
And, then you have another crash lasting over 2 1/2 years losing 42% of value, where the economy chugged along at 2.5% to 5% per quarter. That was in the 1970s.
As you can see, there's no relationship between the stock market and the economy, and stocks have no bearing on the economy. You have to understand that only 3% of all US businesses are corporations and they only employ a small fraction of the total work-force, about 5.8% or 9 Million workers (out of well over 150 Million workers).
When the primary or secondary cause of a recession is Capital reallocation, stocks normally set record highs during the recession then crash after the recession ends.
Do you believe that a stock market crash, like that of 1929, is forthcoming given todays inflation, over extension of credit -mortgages, school loans, cars, etc..?
If not, what is protecting us now that didn't provide protection in the 1920s and 1930s?
I believe that we are going to have a classic recession. There may be some stimulation of the economy to stall the recession until after November of 2020. The Dow is going sideways. Everyone is waiting for the ten thousand point plunge. That may happen gradually. The treasury yield curve is almost flat. A couple of more interest rate raises by the FED will flatten the yield curve.
Take a good hard look at the Depression. No one is selling stock on a 90% margin. So a bubble won't be caused because shoe shine boys can buy $1000 worth of stock with $100. If the financial markets are still bundling high risk bonds and getting them rated AAA, no one is telling me. I hear that Brooksley Borne is still being ignored. I hear that the bill passed after the debacle of 2008 still didn't replace Glass Stiegel.
Unless some catastrophe happens, credit will tighten, stocks will go down, people will get laid off and fifty year olds will be forced into retirement. Then the cycle reverses except for the fifty year olds.
economy is rock solid, US is still the best and safest place to invest money. Could the Dow go down to 22K? ...sure, probably should, doesn't signal anything catastrophic.
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We have lived beyond our means for a very long time and now finaly the piper needs to be paid. Bernanke's handouts to Wall Street in 2009 were theft from the taxpayer. Bernanke just delayed (didn't fix anything) the inevitable DEFLATION by borrowing trillions from the future to spend today. Bernanke willfully DELAYED the necessary Deflation so that someone else would get the blame. Now we have even MORE debt to destroy than we did in 2001 or 2008, which is the goal and point of the Deflation Seasons. We did not do our job from 2001-PRESENT. So we may have to do it now. Which means we COULD get the great Deflation Cycle that Bernanke et al refused to confront head-on.
