There's an old saying...
"When America sneezes, the world catches a cold."...
This past Friday, the Indian stock market plummeted, with investors losing 5 trillion rupees in an instant, allegedly due to U.S. job data hinting at a recession, impacting the Indian market. Earlier in August, when U.S. unemployment figures spiked, global fears arose. The American stock market volatility spread from America to Japan, Korea, and reached India, leading many to speculate the world's strongest economy was headed for a downturn. Stock markets worldwide began to crash, with frenzied selling wiping out trillions in investor wealth in merely a couple of sessions.
The atmosphere stirred memories of the 1929 Great Depression, recalling ‘Black Tuesday’ – a day that wreaked havoc across the globe. We unravel the events of that Tuesday 95 years ago, a day that continues to prompt cautionary tales from top business figures and economic analysts about market risks.
Feel-Good Before the Bad Taste...
If asked where one could go to live a life of luxury and happiness, many would think of the American Dream. This opulent image of America isn’t new.
Nearing a century ago, in fall 1928, future U.S. President Herbert Hoover proclaimed, “We are nearer to the final triumph over poverty than ever before in America’s history.” Most Americans agreed, never having lived a better life. The unemployment rate hovered at a modest 4%, meaning 96 out of every 100 Americans had jobs.
Jazz was all the rage, radios were flying off shelves, electrical and telephone lines were rapidly expanding. It was a time of comfort. Shopping on credit was common, cars became affordable for the middle class, and real estate boomed in cities like Florida. The allure of stock market investment was strong – even those without funds borrowed from banks to multiply money in the soaring markets. Everything seemed perfect.
Source: aajtak
Then Came the Painful Dawn of the Great Depression...
A year later, panic took over. The New York stock market fell apart, businesses shut down, banks collapsed, millionaires were ruined and everyday citizens lost life savings. Jobs and homes vanished, leaving a quarter of Americans unemployed. This economic crisis swiftly spilled from America to the wider world, becoming the Great Depression – the greatest disaster of the modern era.
October 29, 1929, now known as “Black Tuesday,” marked the day the American stock market crashed, heralding a global economic downturn of unprecedented scale. But how did this day come about?
Black Thursday to Black Tuesday...
Imagine a bright morning in New York City, bustling with people heading to work, unaware of the brewing maelstrom. The stock market buzzed with investors anticipating growth, poised to sell, unaware of the rapid changes ahead.
The troubles quietly began a week earlier, on October 24 – “Black Thursday.” Stock prices plummeted, but midday saw businessmen step in, purchasing shares and vocally dispelling concerns. Prices regained strength, calming fears momentarily. Yet, this was the calm before the storm. Black Monday on October 28 again signaled decline, largely ignored. But October 29 – Tuesday morning – left an indelible mark.
Source: aajtak
What Happened That Day?
On this pivotal day, the New York Stock Exchange saw approximately 16 million shares traded, but massive declines spoiled everything. An 11.73% drop swept through, as investors could only stand by, watching their wealth disappear. Wall Street resonated with cries of “Sell, sell!” as millions of dollars evaporated into thin air.
The market lay defeated. A woman leapt to her death from a 44-story building in Manhattan. Actor Groucho Marx lost everything. Within two years, over 2,000 banks folded, with people’s deposits vanishing alongside them. Panic gripped the nation, marred by rumors and despair, as desperate people misunderstood a painter high on a building as a suicidal investor.
Frantic citizens rushed to banks, seeking to withdraw their funds, only to find locked doors – banks were unable to return the money. Those who had borrowed to invest in stocks could not repay loans. Banks had invested depositors' money in stocks, which was now valueless.
Savers lost their funds, yet those who borrowed to invest faced doubly dire straits – losing their money and needing to repay. This crisis led to the closure of around 11,000 banks within four years, half of all U.S. banks. Even those banks remaining operational saw customers fearfully abstaining from usage.
Industries ground to a halt; banks fell into insolvency. Post-crash, people realized their dream world was a mirage – factories existed, but there were no buyers for their products, resulting in job losses. Farmers had harvests ready but nobody to buy. Disaster loomed. People lacked funds for food. Bread lines formed outside relief centers. In New York City, at least 82,000 meals were distributed free daily. The homeless turned to the streets.
Source: aajtak
What Was the Impact of the Great Depression Globally?
American companies had reach worldwide. As U.S. banks toppled, European banks began collapsing too. The economic strife was felt across Europe, Asia, and other continents. Incomes dwindled. In some countries, unemployment reached 33%. From 1929 to 1932, global industrial output fell by a staggering 45%, with many nations grappling supply shortages for a decade.
For homeless Americans, President Hoover’s initiatives – like “Hoovervilles” – were mocked. Economists pressed for decisive government action, but little was done. Infrastructure projects, like dam construction, offered job lifelines to 5,000 people, but fell short in addressing the Great Depression’s vast scope.
What Measures Eased the Fear?
New York Governor Roosevelt presented a model to tackle the crisis. He believed the government should support anyone needing help, highlighting people’s contributions before job losses. Roosevelt introduced the TERA program, ensuring unemployed individuals had enough money to survive, alongside efforts to create jobs.
Roosevelt announced intentions to implement this nationwide. Running for presidency, he appealed to an economically battered America and won. On March 4, 1933, upon becoming president, Roosevelt formed the ‘Brain Trust’ – a group of advisors who crafted plans to steer America out of crisis and towards growth. Prohibition was lifted, boosting revenue through taxation. The TERA program addressed surplus crops to feed the hungry. School lunches were initiated, lessening family burdens.
Roosevelt’s administration took hold of the stock market under government control, enacting strict regulatory oversight. Joseph Kennedy was appointed head of the Securities Exchange Commission. Bank stability was renewed, authorizing only those with strong fundamentals to operate. The CWA program began, employing workers nationwide in construction projects like roads, parks, schools, bridges, and outhouses. This employed over four million workers.
Source: aajtak
Every Coin Has Two Sides...
Ultimately, when Japan attacked Pearl Harbor in 1941, America entered World War II. Factory production rose, with demands for workers on the warfront alleviating unemployment and industrial stagnation.
By the end of World War II in 1945, America had emerged from the economic shadows as the world’s wealthiest nation. Today, nine decades later, America remains a global trade leader, with every policy shift influencing worldwide markets. A mere signal from the U.S. Federal Reserve can make or break global stock exchanges, proof of its enduring impact.
Historical Economic Recessions...
#The Great Depression of 1929 - Originated in the U.S., affecting economies globally with stock market collapse, unemployment, and industrial decline, lasting until 1939.
#1973's Oil Crisis - Triggered by OPEC's price hikes, leading to economic turmoil and high inflation in majorly affected nations.
#2002 Recession - Resulted from the dot-com bubble burst and post-9/11 effects, troubling global economies for years with rising unemployment and halts in economic activity.
#2008 Financial Crisis - Stemmed from the U.S. housing sector, impacting banks worldwide, causing economic slowdowns and rising unemployment.
#COVID-19 Lockdown - Began late 2019, with global lockdowns due to the pandemic severely impacting economies, leading to a 3% drop in global GDP, surpassing past crises in magnitude.
Economic Policies of Trump and Kamala Harris...
The upcoming 2024 presidential election spotlights the economic policy contrasts between Donald Trump and Kamala Harris. Republican Trump champions prioritizing U.S. companies, proposing trade wars with China and supporting global ventures of American oil and gas firms. In contrast, Democrat Kamala Harris advocates for middle and working-class priorities, suggesting tax increases for corporates and the wealthy.
Source: aajtak
Why Are Fear Waves Resurfacing from Uncle Sam?
With U.S. elections approaching, talks of recession have resurged as recent unemployment and GDP figures rekindle old fears. Current data reveals U.S. unemployment at 4.3% – its highest since October 2021.
This marks the third consecutive month of rising joblessness in America, where an average of 215,000 jobs are created monthly, but only 114,000 emerged. Moreover, U.S. GDP grew at a modest 2.8% growth rate in Q2 2024, with inflation exceeding 6%. Experts thus reignite conversations on a looming American recession.
This directly impacts Wall Street’s stock markets. Recent figures in early August caused significant declines in indices like Nasdaq, S&P 500, and Dow Jones, echoing in Indian markets as well. Prominent economist Harry Dent, known for accurate market predictions, warned that a bubble 14 years in the making could burst in 2025, surpassing the 2008 crash’s severity.
