The Psychological Effects of a Stock Market Crash: Impact on the Economy and Policy (1987)

Share it with your friends Like

Thanks! Share it with your friends!

Close

The crash of an early European stock markets, when the speculative bubble around the South Sea Company collapse in London in 1720.

The economy had been growing fluidly for most of the Roaring Twenties. It was a technological golden age as innovations such as radio, automobiles, aviation, telephone and the power grid were deployed and adopted. Companies that had pioneered these advances, like Radio Corporation of America (RCA) and General Motors saw their stocks soar. Financial corporations also did well as Wall Street bankers floated mutual fund companies (then known as investment trusts) like the Goldman Sachs Trading Corporation. Investors were infatuated with the returns available in the stock market especially with the use of leverage through margin debt.

On August 24, 1921, the Dow Jones Industrial Average stood at a value of 63.9. By September 3, 1929, it had risen more than sixfold, touching 381.2. It would not regain this level for another 25 years. By the summer of 1929, it was clear that the economy was contracting and the stock market went through a series of unsettling price declines. These declines fed investor anxiety and events soon came to a head on October 24, 28, and 29 (known respectively as Black Thursday, Black Monday, and Black Tuesday).

On Black Monday, the Dow Jones Industrial Average fell 38 points to 260, a drop of 12.8%. The deluge of selling overwhelmed the ticker tape system that normally gave investors the current prices of their shares. Telephone lines and telegraphs were clogged and were unable to cope. This information vacuum only led to more fear and panic. The technology of the New Era, much celebrated by investors previously, now served to deepen their suffering.

The following day, Black Tuesday was a day of chaos. Forced to liquidate their stocks because of margin calls, overextended investors flooded the exchange with sell orders. The Dow fell 30 points to close at 230 on that day. The glamour stocks of the age saw their values plummet. Across the two days, the Dow Jones Industrial Average fell 23%.

By the end of the weekend of November 11, the index stood at 228, a cumulative drop of 40 percent from the September high. The markets rallied in succeeding months but it would be a false recovery that led unsuspecting investors into further losses. The Dow Jones Industrial Average would lose 89% of its value before finally bottoming out in July 1932. The crash was followed by the Great Depression, the worst economic crisis of modern times that plagued the stock market and Wall Street throughout the nineteen thirties.

On September 16, 2008, failures of massive financial institutions in the United States, due primarily to exposure of securities of packaged subprime loans and credit default swaps issued to insure these loans and their issuers, rapidly devolved into a global crisis resulting in a number of bank failures in Europe and sharp reductions in the value of equities (stock) and commodities worldwide. The failure of banks in Iceland resulted in a devaluation of the Icelandic króna and threatened the government with bankruptcy. Iceland was able to secure an emergency loan from the International Monetary Fund in November.[14] In the United States, 15 banks failed in 2008, while several others were rescued through government intervention or acquisitions by other banks.[15] On October 11, 2008, the head of the International Monetary Fund (IMF) warned that the world financial system was teetering on the “brink of systemic meltdown.”[16]

The economic crisis caused countries to temporarily close their markets.

On October 8, the Indonesian stock market halted trading, after a 10% drop in one day.

The Times of London reported that the meltdown was being called the Crash of 2008 and older traders were comparing it with Black Monday in 1987. The fall that week of 21 percent was not as large a drop as the 28.3 percent fall 21 years earlier, but some traders were saying it was worse. “At least then it was a short, sharp, shock on one day. This has been relentless all week.”[17] Business Week also referred to the crisis as a “stock market crash” or the “Panic of 2008.”[18]

Beginning October 6 and lasting all week the Dow Jones Industrial Average closed lower for all five sessions. Volume levels were also record breaking. The Dow Jones industrial average fell over 1,874 points, or 18%, in its worst weekly decline ever on both a point and percentage basis. The S&P 500 fell more than 20%.[19] The week also set 3 top ten NYSE Group Volume Records with October 8 at #5, October 9 at #10, and October 10 at #1.

http://en.wikipedia.org/wiki/Stock_market_crash

Comments

Peter S. López says:

▶  The Psychological Effects of a Stock Market Crash: Impact on the Economy and Policy (1987): http://youtu.be/O_W6LvC5688  ~Pub Aug 21, 2014
====
▶ Connect @Peta_de_Aztlan
c/s

mark fleagle says:

If the dollar can’t be expanded into other nations the dollar will die, the US Government is becoming the spender of last resort.
 
But here’s the rub, dumping that much cash into the economy all at once, without a corresponding increase in the available goods and services to buy with it, would simply push the prices of the available good and services higher due to increased demand.
 
The Dollar will collapse, and the Central Bank will introduce a solution of using the IMF’s Special Drawing Rights (SDR)’s.
 
Americans must reject the SDR solution, because SDR's come with interest attached.
 
The IMF has a long history of implementing production regulations that penalize self-sufficiency.
 
The globalists’ seek to make each nation interdependent for the goods and services and look to regulate markets through a single world currency.

QE is the finger in the dike, which is stopping the toxic dollars from flooding back into the US.

QE cannot, and will not stop the toxic dollars from flooding back into the US.
 
Eventually a price will be settled upon, that pegs all currencies to gold.

mark fleagle says:

The rapid expansion of the US Government is no accident, the government needs to waste as much money as possible and bill the interest to the taxpayer.

Federal Reserve has chosen to expand the America dollar into other Nations; of course, other Nations see the Federal Reserve’s expansion of the dollar as a direct threat to their own economies, they see the collapse coming, so other Nations are busily bypassing the dollar, and unloading the toxic dollar reserves.

This means the US must engage those Nations who refuse to use the dollar into war.

The US government not only utilizes its own standing army, but utilizes mercenary forces like “Black Water” to do the dirty work.    

It’s no secret that Al-Qaeda, ISLA & ISIS was created by the CIA, and is controlled, funded and armed, by the United States to fight proxy wars for the United States, and Israel.

This Arrangement also allows the U.S. to loot the smaller nations of GOLD, OIL, or anything else they find of value, while simultaneously forcing the smaller Nations to trade in U.S. Dollars, these allows the Central Bank a little more time to continue their paper Ponzi scheme.

mark fleagle says:

We need to stop 'Property Taxation.'
 
People are beginning to understand that they can never own property as long the government is able to impose property taxes; the silent majority recognizes how vulnerable they are to property tax increases and foreclosures.         
 
It all started with the 1933 bankruptcy where the government declared that they owned everything, including you, that they could tax you anywhere, all the time.
 
This taxation included monetizing your birth certificate and any property (houses, cars, boats, land yachts, basically anything that had a title) to put up as collateral for the banks in the bankruptcy. So, can you say that you "own" anything?
 
The Answer is, ‘No’ you don’t own anything that has to be titled.
 
You're paying a "user fee" tax for the privilege of being allowed to use the items you paid for.
 
Millions of property tax foreclosures take place every year; as long as you are forced to pay property tax you really don’t own the property.
 
What is the answer to this problem?

Paul Lee says:

I love the way they don't even think about questioning military spending or "defence" budget as they call it. Also the way he side-steps foreign aid by calling it a detail amongst so many other details that can't be dealt with. This is true government BS, and shows it for what it is: Slavery of the population.

Comments are disabled for this post.