The bubble that shook the world
The new world power, the United States of America, emerged mainly due to the first world war. Initially, declaring neutrality, the Americans financed 3 billion dollars for France and England, who were their allies, and in addition, they became their main supplier of weapons, ammunition and food, which corroborated in a considerable growth for industrial production and income. from the country. After a great dilemma, President Wilson decided to enter the war in mid-1917, which contributed to the end of what was called "The last war of wars", in 1918.
In the 1920s, after a post-war global recession, the US economy experienced what would be one of the biggest growths in its history. High industrial production, price stability and reduced unemployment unleashed an era of consumerism, highlighted by the rise of the affluent middle class. In 1928, 9 out of 10 families owned a car, which would be the main catalyst for growth until then, even if acquired through indebtedness, through installments. Almost all people at that time were in debt, granting credit was very simple and poorly regulated.
President Calvin Coolidge, who took office after the death of Warren G. Harding, advocated free trade and free enterprise, with minimal state intervention. The US matched the production of England at that time, being achieved mainly by the mass production created by Henry Ford. All this production boosted the real growth of per capita income. Because of this bonanza, most people have created a desire to get rich quick and effortlessly. From there, the problem began.
Through this thought, the financial market became the main instrument of speculation and expectation of extraordinary gains. As after the war the shares were discounted, they would give great chances of interest and profits in the future. People who did not have access to the financial market, with credit facilitated by brokerage firms, began to buy on the margin. This practice spread easily, as stocks at that time were only going up. The real value of the shares or assets no longer mattered, but how much they could rise in price and bring in profits.
In this process, the agricultural sector did not keep up with the wealthy automobile industry, with the drop in food purchases from Europe, food prices plummeted. This fall brought major problems for the sector, especially for farmers who were no longer able to repay their loans to banks. In 1926, one of the real estate speculation practices exploded, stemming from the sudden devaluation of land in Florida. Worthless land was sold at exorbitant prices due to the expectation of an increase in tourists, through purchase promises (purchased with a down payment of 10% of the land value), which could be sold at any time.
This explosion generated a deceleration in speculation that had taken place until then, however, in 1927, after data of a fall in the industrial index and the intention of loans to Europe, the Federal Reserve reduced the basic interest rate, which stimulated the resumption of market growth speculative to astronomical proportions. In that year alone, around 577 million bonds were traded. In 1928, Robert Hoover, former Secretary of the American Treasury, considered the architect of prosperity, assumes as president. He takes over the country with a booming economy, but with two hidden gunpowders that heralded an unlimited disaster, instant credit and the lack of regulation of the stock market, which was already out of control.
Until, in October 1929, the Wall Street speculative bubble burst, the New York stock market had an abrupt fall, caused by a general panic, everyone tried to sell the shares they owned. The market lost 4 billion dollars that day. The worst was yet to come on the so-called Black Tuesday. Brokers were used to selling shares on the margin through loans made by banks, which demanded payment due to that circumstance. To pay the banks, the brokers collected the debts of their clients, who, in order to pay the brokers, had to sell the shares at any price. On Black Tuesday, brokers and speculators sold more than 16 million bonds, totaling a loss of 14 billion dollars.
Frightened by this whole situation, people who had savings deposited in banks, made a run to take their money in cash. Around 9000 banks failed at that time, creating a credit shortage for companies that were going through that turbulent time. This shortage caused the closure of 100,000 companies. Those companies that closed laid off their employees, contributing to a chain fall. People have lost a lifetime's savings. Proud citizens in the past, found themselves dependent on unemployment benefits and soup lines organized by associations. President Hoover, who was seen as a hero at the beginning of his term, was at the end seen as an injustice by the jobless crowds. The GDP, from 1928 to 1932, fell from 80 to 40 billion dollars and unemployment increased from 3.2% to 25%, that is, 1 in 4 workers was unemployed.
The great depression that followed was supported by the decline of industrial activity, agricultural difficulties (as It had already mentioned above), real estate saturation and banking disorganization; This great crisis marks the end of a republican era, with democrat Frederick Roosevelt being elected in 1932. He was not able to magically get out of this crisis, but managed to regain the confidence of the American citizen, especially in the banking system.