[ad_1]
What Is Black Tuesday?
Black Tuesday occurred on Oct. 29, 1929, when the stock market crashed. The Dow Jones Industrial Average fell 12%, with over 16 million shares traded in a panic selloff. It marked the end of the Roaring Twenties and the start of the Great Depression, causing widespread economic problems that affected the global economy and U.S. trade policy.
Key Takeaways
- Black Tuesday on Oct. 29, 1929, saw the DJIA plummet by 12% in one of history’s largest one-day stock market losses.
- The crash marked the end of post-WWI economic growth and the onset of the Great Depression.
- Causes included excessive debt for stock purchases, protectionist policies, and slowing economic growth.
- U.S. tariffs like the Smoot-Hawley Act worsened global trade, reducing international trade by 66% from 1929 to 1934.
- The market did not fully recover until 1954, despite initiatives by Franklin Delano Roosevelt to rebuild the economy.
The Economic Consequences of Black Tuesday
Black Tuesday signaled the end of a period of post-World War I economic expansion and the beginning of the Great Depression, which lasted until the beginning of World War II.
After World War I, the U.S. became a major economic power, focusing on its own industry over international collaboration. High tariffs on many imports protected young industries like cars and steel. Agricultural prices dropped as Europe resumed production post-war, leading to tariffs to protect U.S. farmers. Despite tariffs, farm incomes and land values fell, pushing more people to cities.
The “Roaring Twenties” boom was driven by the belief that good times would last after ‘the war to end all wars.’ Between 1921 and the crash in 1929, stock prices went up nearly five times as ordinary individuals bought stock, often for the first time. This was fueled by lending by brokers that at times reached two-thirds of the stock price, with the purchased stock serving as collateral. Income inequality also rose. It is estimated that the top 1% of America’s population held 19.9% of its wealth.
Factors Leading to the 1929 Stock Market Crash
By the middle of 1929, the economy was showing signs of slowing, led by declines in purchases of houses and cars as consumers were burdened with debt. Steel production weakened.
The Role of Protectionism in the 1929 Crash
A few years earlier, European production of agricultural goods began to recover following World War I, which meant American farmers would lose that market to sell their goods. As a result, the U.S. Congress passed a series of bills designed to help American farmers by increasing tariffs (or prices) on imports, including agricultural products. At the same time, news from Europe indicated an excellent harvest, which meant an increased supply and overproduction, pushing commodity prices lower and rattling the markets.
The U.S. Congress stepped in again and passed the Smoot-Hawley tariff act, which not only increased tariffs on agricultural goods but on goods in other sectors as well. Many other countries had also adopted protectionist policies. The impact on global trade was devastating. International trade had decreased by 66% from 1929 to 1934.
Federal Reserve Actions During the 1929 Crash
In August, the Federal Reserve Bank allowed its New York regional board to raise its discount rate. The monetary policy move caused central banks around the world to follow suit. The London stock market dropped sharply on Sept. 20 when top investor Clarence Hatry was jailed for fraud. Markets gyrated for the next month.
The Final Days Leading to the Black Tuesday Crash
All of these factors eventually caused the stock market to crash. On Black Thursday, Oct. 24, the market fell 11% at the open. Heads of the major American banks devised a plan to support the market by buying large chunks of stock, and the market closed down just 6 points. But by Black Monday, the 28th, panic and margin calls spread. The market fell 13% and a further 12% on Black Tuesday in record-setting volume. Efforts led by the financiers and industrialists to support prices could not stem the tide of selling. The market lost over $30 billion of value between September and November.
The market hit a 20th-century low of 41.22 on July 8, 1932, which was a fall of 89% from its high of 381.17 on Sept. 3, 1929. Economic growth, as measured by Gross Domestic Product (GDP), shrank by more than 36% from 1929 to 1933. The unemployment rate in the United States surged to over 25% as workers were laid off after they had been hired during the boom years.
It was only after President Franklin Delano Roosevelt was elected that the economy showed signs of taking a turn towards the better. Among his achievements is stopping the Smoot-Hawley tariffs and establishing the Reciprocal Trade Agreement Act in 1934. Still, a new high wasn’t reached until Nov. 23, 1954.
[ad_2]
