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Comment: The Great Depression

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The Great Depression

From 1921 to 1929 the Federal Reserve increased the money supply by 62% thus fuelling the period known as the Roaring Twenties. Further fuelling the rise in stock market indices was a new type of loan, known as a margin loan, whereby an investor would only need to put down 10% of the value of a stock with the remaining 90% being loaned from the broker. Like today, these loans could be called in at any time and had to be paid within 24 hours, known as a margin call. This is typically accomplished by the selling of the stock purchased using the loan.

These two factors, loose monetary policy and easy loans resulted in a fivefold increase in the Dow Jones Industrial Average over the latter half of the 1920's.

The mass calling in of these margin loans by the New York banking establishment resulted in the devastating market crashes of October of 1929. "Black Thursday", the initial crash, occurred on October 24. The crash that caused general panic five days later on October 29 was known as "Black Tuesday".

And then- wait for it

Then, instead of expanding the money supply, the Federal Reserve contracted it, thereby creating the period known as the Great Depression.

"Its easier to fool people than to convince them that they have been fooled."
Mark Twain