So bad was the fallout of Boris Yeltsin’s efforts to money up the Soviet economy and introduce capitalist based reforms, many people who have the time and inkling to think about such things, reckon that the Russians faced an economic blow-up that was even greater than that of the Great Depression; a worldwide economic depression that made living in the 1930s so miserable, for so many people. The Great Depression was the longest, deepest, most wretched depression of the twentieth century. That Russia faced something worse doesn’t make our Boris look too clever but as it was more of a Russia problem, it arguably didn’t really have the same impact. Economists also, as an aside, struggle to actually agree anything so any debate on which crisis was worse is likely to be a long and fairly tedious affair; but still, it appears it was bad. That said, the Great Depression was also bad. Really bad, only this time bad for everyone. To give it some context, global GDP – basically a measure of how well the world is doing economically – fell 15% in the Great Depression. 15% doesn’t really mean much on its own, so the most recent recession, the one that followed the Great Financial Crisis brought about by bonus and coke fuelled bankers, global GPD fell less than 1%. Some people lost their house and some banks went bust. But did Tesco close? Nope. Life went on. The Great Depression though, was a different story.
It started, as all good crises tend to do, with Wall Street on fire. Black Tuesday was the most devastating stock market crash in the history of the United States. Until Black Monday came along about fifty years later. There is nothing that inspires panic quite like a stock market in free fall. Wealth disappearing before the eyes. Savings annihilated. A future of allotments and long rainy days walking the dog beckon as retirement plans get set back. Now Black Tuesday followed the roaring twenties when wealth and excess were fuelled by giddy, post-war optimism. The cities swelled. It was an era of social and cultural dynamism played out to a soundtrack of jazz. Short skirts and bobbed hair redefined life for women and art deco flourished. It was the age of large scale adoption of cars, telephones, radio, electricity, and air conditioning. It was a time of rapid industrialisation and voracious consumer demand. It was also a time of massive speculation. You didn’t need to be a dour faced economist to think that it probably wasn’t going to last.
What tends to happen when everyone is making so much money, is that no one cares to notice when things start to go wrong. Why spoil the party? Yet as the Federal Reserve, the Central Bank of the US, was quietly muttering about speculative excess in the stock market so too was there evidence that the US economy was beginning to run out of steam. Steel production fell, construction stalled, and car salesmen were left smoking by the bins wondering where everyone had gone. The banks, as is their want, continued to lend money to anyone who would ask. Debts piled up. It was all going well until a financial expert said that a “crash was coming”. Gulp. Markets wobbled, yet such was the air of good cheer, it was seen as nothing more than a healthy correction.
Shortly afterwards in London a well-known and respected investor, Clarence Hatry, was collared by the Old Bill and locked up for the sticky one-two of both fraud and forgery. The stock market took the news badly and started to jitter. American investors looked at each other and clenched their buttocks. People started selling. Slowly at first, but then volumes began to pick up. The Thursday before Black Tuesday, the stock market opened down 11%. Stock prices at the time were reported on a ticker tape, but given the massive volume, prices were published hours late. No one knew what the actual price of anything was. If you don’t know, you tend to sell. And keep on selling. Wall Street bankers, fearing the worst, finally stepped in and tried to stabilise the market and calm everyone down. One man, Richard Whitney, who was President of the New York Stock Exchange, started placing orders for stocks well above published prices. Everyone breathed, combed their hair and stock prices tentatively recovered. The market even rallied on the Friday.
Come the weekend though, the newspapers were all doom and gloom, reporting the wobble in grave tones. Confidence went pop and by Monday, the selling returned in size. By Tuesday – this being Black Tuesday – there were no buyers left. When there are no buyers, stock prices hit an air pocket. Chaos ensues. As often happens after sharp falls, a few gung-ho, have a go buccaneers tried to dip a toe back into the water. This was akin to nipping out onto the M4 to pick up a pound at rush hour. They all got run over and stocks continued to fall. By the time the market hit rock bottom in March the following year, it had lost 89%.
The stock market crash bust banks and sparked a spate of bankruptcies across industrial America, and the world. Those countries who had relied on US loans, specifically countries in Europe desperate to rebuild the debris of WWI, got clobbered as credit was pulled. Countries like Australia and Chile who were dependent on agricultural exports got walloped too. Latin America all but collapsed and in Thailand King Rama VII lost his job in the Siamese revolution. Gritty times. Even Sweden had to tighten up and put fewer logs in the sauna.
What stopped the rot was massive Government intervention. The US got themselves a new President, Franklin D. Roosevelt, who cooked up a plan of huge economic stimulus that became known as the New Deal. Then came World War II. The Great Depression sowed the seeds for the rise of nationalism with disastrous consequences. Wars though, are very good news if you make anything that might be involved in taking on the Jerries and, sadly, are a very effective means of solving high unemployment.
All in all, a rather bitter period of history. Not much fun to be had when butter is seen as a treat.