Its often called the greatest financial crisis in the history of the United States because
it lasted ten years and crashed the entire economy.
The American leadership tried everything to save the economy but nothing worked out, every
solution proved to be ineffective in the face of such a crisis, and the only thing that
could save the economy was the deadliest war in human history (WW2).
Its July of the year 1914, world war one breaks up, and the entire European continent is in
conflict, but the war slowly spreads to the rest of the world.
Everyone is eager to win, but unfortunately, supplies are limited especially food.
So the allies turn to the United States for help, since it wasn’t directly affected
by the war and had the economic power to do that.
War by no means is good, but it brought a period of economic prosperity to the United
States.
The demand for equipment, weapons, wheat was at an all-time high, and no one else could
fill that gap except the US.
If you were a farmer, you could produce as much wheat as you wanted and could sell it
easily at a high price.
Since countries with troops at the battlefield had to take any measures to win the war.
By the end of the war, the United States also entered the game which further increased the
demand since soldiers needed equipment and food.
It was probably the best time to invest since the economy was booming and everyone was making
money.
Even though the war has ended by 1918.
The demand for American goods especially wheat didn’t fall because the entire world was
still recovering.
When farmers realized that, they began taking huge loans to buy more land and equipment
to farm more wheat.
Which led the real estate prices to grow.
That pushed people to buy even more lands hoping to sell it later for a higher price.
The same thing was happening to every other industry.
In fact, many companies emerged that only existed on paper but didn't even have the
equipment or land because everyone was throwing money into the stock market hoping to make
a fortune, which further escalated the prices.
Would you really stand aside and watch how your neighbors make money while you get nothing.
Even foreign countries started investing in the united states hoping to make a buck.
I guess you can already see the flow.
Many companies were overpriced since most of these investments were based on speculations.
Nonetheless, that didn't stop people from investing.
People had faith in the economy.
When things are good, you start thinking that it's going to be like that forever.
What seems so obvious today wasn't obvious then.
However, When Europe started recovering, the demand for American goods fell, especially
for wheat, since other counties began to grow wheat as well.
In August of 1929, France and Italy were bragging of a magnificent harvest, while the US had
millions of bushels of wheat on the shelves that they couldn’t sell.
This oversupply threatened to drive the prices down.
It caused a little panic in the stock market but didn't cause anything significant.
A month later, the wheat prices decreased from $1.49 per bushel to $1.31 because of
the oversupply.
It was devastating news, the stock market plummeted.
People got frightened and began to sell their stocks to cash out before the stock market
declines further.
That only made the situation worse crashing the market even more.
That day, October 29th went down in history as Black Tuesday.
However, that was just the beginning.
Since wheat prices were falling, farmers couldn’t pay back their debts, that created pressure
on the banks.
The panic has already spread to the entire country, and all that people cared about was
cash, so they rushed to the Banks for their savings.
Unfortunately, banks couldn’t pay back their obligations since their borrowers weren't
able to pay them back their debts so they had to shut down one after one.
In just ten months, 744 banks failed.
It didn't matter whether you had a good or bad business, people lost faith in the market,
and all that mattered was to minimize the losses.
As a result of the that, even good legit business started declaring bankruptcy.
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The news spread to Europe and caused panic over there since many European countries have
invested heavily in the United States.
The panic caused the same thing over there, and soon the entire world was facing a great
depression.
Although this crisis happened almost a hundred years ago, financial crises, in general, are
pretty similar, including the dot-com bubble of the 2008 crash.
And the next global recession is going to take place in a very similar way.
Nobody really knows for sure how and when exactly its going to start but we have multiple
bubbles that are big enough to burst at any moment such as student loans, healthcare and
most important the stock market itself.
circles Since the last crisis, S&P500 has increased
dramatically, this growth is definitely unsustainable and when it crashes, it's going to create
a panic that's simply going to make things much worst.
Graph 3 doors
You can't really avoid the recession because the world economy is so interconnected and
dependent on each other that a crisis in the largest economy in the world, will take down
the rest of the world with it.
But the recession isn't going to be forever, it might last a year, maybe two, maybe 5 but
eventually it will recover.
Just a year after the 2008 crash, in 2009, the sp500 increased by 26.5 percent.
So don't panic and sell your investments when the media will be shouting all over the place
that if you won't sell now, you are going to lose every damn penny you have invested.
Of course, some companies won't survive the crisis and go bankrupt as it happens in every
crisis, but if you are an investor in an index fund, you should be fine.
You probably will lose your job because companies will start cutting cost in order to survive,
so if you are not vital to their survival, you might be unemployed, so make sure you
have some savings on the side, at least.
But the smartest investors will start investing heavily because prices will be at their lowest
point.
And once the economy recovers, they will be much wealthier.
That's why they say, the rich get richer.
The topic of the global recessions never ends, that's, why the media started talking about
it even before the last crisis, ended but this video has to.
So thanks for watching and until next time.