The Great Depression

The aftermath of World War I was no different for the economy than following World War II—economic prosperity. The automobile, radio, and other new innovations spurred the economy to unprecedented heights, with renewed interest in the stock market for the average citizen to make tons of money—something nearly impossible to realize prior to World War I. Interest in the stock market became so intense that brokers sold stocks on margin, with the investor only having to put down 10 or 20 percent. In other words, if an investor wished to buy $1,000 of US Steel stock, they simply had to have $100 or $200. The broker put up the rest! Citizens were actually allowed to enter the market by borrowing 80 or 90 percent of the value of the stock with money that had to be paid back to the broker if the stock fell below a certain price.

This is eerily similar to the millions of sub-prime mortgages sold prior to the 2008 financial collapse to mostly middle-class homeowners who couldn’t afford them. Investor money put into the market did exactly what it was supposed to do—create a market bubble by overpricing stocks, exactly what the 401K investment monies did in the 1990s and 2000s which fed into the 2008 fiscal crisis, creating tremendous losses to middle class retirement funds.

The Dow Jones Industrial Average reached a then all-time high of 381 on September 3, 1929, slightly less than two months prior to the Crash, when the lives of millions of investors were effectively ruined. True, many companies were beginning to report disappointing earnings, and the economy was certainly slowing, but think about this: In just under two months, from September 3 to October 29, the market fell from 381 down to 230, a 151 points loss, gobbling up 40 percent of the wealth in the market, and beginning the domino effect of companies cutting back, unemployment growing, banks closing, and a massive loss of personal savings. The market had been at a record high, indicating a strong economy, and in just roughly sixty days the money supply entered free-fall. Welcome to the stock market casino.