Black Thursday 24 October 1929 – the bankruptcy of scientifically grounded optimism

Чёрный четверг 24 октября 1929 года – банкротство научно обоснованного оптимизма

It happened ninety years ago. On 24 October 1929 the stock exchange of new York began the collapse that triggered the economic crisis in the US economy, then Europe and other countries (except USSR). He was called “the Great depression”, but it was a real crisis (1929-1932), or decline. And depression (stagnation) began in 1933 and lasted until the Second world war.America is fabulously rich in the First world war. To the beginning, the U.S. was the world’s largest international debtor in the private (corporate) debt. And in five years America became the world’s largest net creditor. Created a few months before the war, the us Central Bank (Federal reserve) began actively to issue U.S. dollar pushed the pound sterling – the former monopolist in the foreign exchange world.America has become a benchmark for a prosperous society at her like she was an unattainable dream stare ruined and hungry Europe.Key developments in the US occurred in the world of Finance. Vigorously develop the stock market. The economy is actively pumped by loans that were issued by banks included in the fed. A significant part of credit money ultimately found themselves on the stock market. America has turned into a giant gambling house. Played all. First, banks, which in addition to credit activities began to be engaged as an “investment”, i.e. the purchase of securities. Secondly, corporate clients of banks that only part of the loans directed at the development of production, an increasing part was used for investment in securities. Thirdly, individuals. Of the 120 million American adults, 30 million played with the papers (not even played, and stupidly bought). A million and a half engaged in playing “professionally” by opening accounts with brokerage firms. Millions of Americans are no longer interested in their salary, they first came the income from the purchase of securities, which was more expensive. Personal income (salary) played a supporting role in the purchases of securities, they are carried out mainly through loans. Feature of the loans was that they were to return upon demand of lender (on call). However, banks such claims are not filed, and the debtors began to forget about the nature of their obligations.In social psychology there is the concept of “collective madness”. One example of such lunacy in recent history was the Third Reich. But I think no less striking example of mass lunacy are the “roaring twenties” in America. Induced this madness home money – the main shareholders of the fed. This was done through the media, cinema (Hollywood), the higher education system – with the help of money that the Federal reserve fueled the passion of the players in the financial markets.It is noteworthy that America after the First world war was the only country which preserved the gold standard meaning that the Central Bank can issue more money than there is gold in its reserves. In terms of the gold standard, no “quantitative easing” (which today is practiced by the fed, ECB, BOJ, other Central banks) can not be.So, in 1920-e years the money supply in the United States, created the Federal reserve, increased by 60%. This growth in gold reserves, America could not be; hence, they slowly weakened the effect of the “Golden brake”, that is, lowered the percentage of coverage of the issue of money with precious metal. Especially a lot of money put into circulation in 1927, when there were some signs of a slowdown in the U.S. economy, and the fed first tried to use the zoom issue money to control the economic cycle. Then it worked. The American economy climbed out of the pit and continued to grow.In creating the money supply in America were not only the Federal reserve banks (there are twelve). The bulk of the money was born in private banks that created money out of thin air (the new non-cash money was born in the issuance of loans by the Bank). Although the title of the U.S. Federal reserve and contains the word “backup”, backup of the obligations included in the fed private banks was symbolic. When in 1913, the U.S. Congress adopted the Federal reserve act, lobbyists act convinced that the fed will be a reliable guarantor capable of preventing banking crises. It was a lie, because such a guarantee could be given with 100 percent redundancy, it really was only a few percent. Due to such a virtual (essentially fake) money and there is mass madness in the financial market of the United States.Liberal monetary policy of the fed was reflected not only in increasing the mass of dollar bills and encourage private banks to increase the issue of counterfeit money, but also in the decrease in the discount rate of the American Central Bank. Then the discount rate – a modern analogue of the key rate. The discount rate from 6.5% in 1921 was reduced to 4% in early 1927. And in August of the same year it was reduced by another 0.5 percentage points, down to 3.5%.The amazing thing is that the victims of the mass lunacy in the “roaring twenties” were not only millions of ordinary Americans, a fanatic who had dedicated his life gambling on the stock exchange. Mass psychosis has not spared US presidents, Ministers, senior government officials, representatives of economic science, big business, etc. They did not see the signs of impending disaster and failed to stop monetary and exchange Orgy. On the contrary, some of the members of this “elite” profound said that America is entering the era of crisis-free development and “eternal prosperity”.Many intellectuals and politicians of the Old world looked with envy on the New world and considered it the benchmark against which Europe should follow the example. Looking at America, the famous English economist John Maynard Keynes in 1927 stated: “In our time more landslides will not.”Most of the “roaring twenties” came at a time of the thirtieth President of the United States John Calvin Coolidge (1923-1929 years). That’s when it appeared the term “prosperity” (“prosperity”), which briefly was identified by the us socio-economic model as a model of “Paradise on earth”. 4 Dec 1928 Coolidge with a sense of deep satisfaction declared: “Never before the Congress of the United States gathered to consider the state of Affairs in the country, would not open such a nice picture as it is today. In domestic Affairs we see peace and contentment… and the highest record period of prosperity. In international Affairs – peace and goodwill based on mutual understanding”. Leaving the White house, Coolidge said: “the Country is pleased to look to the present and with optimism for the future.”Not smaller optimism radiated a new President Herbert Hoover, who won the election of 1928. During his election campaign, he promised every American family a car. Hoover “saw the future America as an Empire of a new type of economic world Empire, created on the basis of excellence in business associated by ties of trade and credit, penetrate the country, conquering all the other Nations”.In the summer of 1929 in the real sector of the American economy in a number of industries were fixed slowdowns. And the most surprising – nobody paid attention to it. Everyone was focused on stock markets, where continued upward trend.One of the chief economic guru of America at that time was considered a Professor at Yale University, authority on the theory of money Irving Fisher (1867-1947). Today it is included in the list of “100 most prominent economists in the world”. So in interview to the newspaper “new York times” on 5 September 1929, he thoughtfully said, “Possibly, quotations of securities and will decline, but there will be no disaster.” However, the accident occurred.The excitement in the stock markets could be seen a few days before “black Thursday”, some stocks sagged noticeably, but the stock game has counted that the authorities will not allow more serious landslides. There was blind faith that the Federal reserve and the us Treasury will be able to normalize the stock market. Banker Charles Mitchell on October 22 announced that “the market is quite healthy”, recognizing, however, that “the fall in the value of shares has gone too far.” Mitchell echoed Irving Fisher, who claimed that on the stock exchange occurred “a technical cleanup” from unstable investors and that it is just “healthier” market. Spells the banker and the Professor made a psychotherapeutic effect: at the end of the day on October 22, there has been some growth of stock indices.Even the collapse on the stock exchange in the “black Thursday” did not save the American elite from the belief that “cloud pass,” and prosperity will continue. The day after “black Thursday” President Hoover addressed the nation saying that the exchange has occurred “a technical failure”, but “the country’s economy rests on a solid Foundation”.Until the end of 1929, many people in America continued to believe that the fall on the stock exchange will soon be over and the game starts to increase. 14 Nov 1929, Irving Fisher claimed that the decline in the stock market “will end in a few days.” Harvard University, too, missed the beginning of the great depression after “black Thursday” repeatedly promised a radical reversal of stock trends.Final illusion of the return of the era of “prosperity” disappeared only in the beginning of 1930, when the fire stock market panic spread to the real economy of the United States: an epidemic of Bank failures, businesses, farmers, suicide rates; unemployment has increased several times and captured a quarter of the economically active population of America…

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