The Crash of 1929

The Wall Street crash of 1929, "Black Thursday," was an event that sent the US and indeed the global economy into a tailspin, contributing to the Great Depression of the 1930s.

After a huge speculative rise in the late 1920s, based partly on the rise of new industries such as radio broadcasting and carmaking, shares fell by 13% on Thursday, 24 October.

Despite efforts by the stock market authorities to stabilise the market, stocks fell by another 11% the following Tuesday, 29 October.

By the time the market had reached bottom in 1932, 90% had been wiped off the value of shares. It took 25 years before the Dow Jones industrial average recovered to its 1929 level.

The effect on the real economy was severe, as widespread share ownership meant that the losses were felt by many middle-class consumers.

They cut their purchases of big consumer goods such as cars and homes, while businesses postponed investment and closed factories.

By 1932, the US economy had declined by half, and one-third of the workforce was unemployed.

The whole US financial system also went into meltdown, with a shutdown of the entire banking system in March 1933 by the time the new President, Franklin Roosevelt took office and launched the New Deal.

Many economists on both left and right have criticised the response of the authorities as inadequate.

The US central bank actually raised interest rates to protect the value of the dollar and preserve the gold standard, while the US government raised tariffs and ran a budget surplus.

New Deal measures alleviated some of the worst problems of the Depression, but the US economy did not fully recover until World War II, when massive military spending eliminated unemployment and boosted growth.

The New Deal also introduced extensive regulation of financial markets and the banking system through the creation of the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC), and the separation of commercial and retail banking through the Glass-Steagall Act.

By Steve Schifferes
Economics reporter, BBC News

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