America in 1929: A lesson on economic collapse from history

You may have heard of “Black Tuesday” (Black Tuesday) - October 29, 1929, when the American stock market plummeted uncontrollably. But did you know this event led to the worst economic crisis of the 20th century? That was the Great Depression - a terrible period that lasted throughout the 1930s, causing millions of people to lose their jobs, thousands of businesses to go bankrupt, and the entire world economy to feel like it was “reset”.

What happened?

Looking at the causes, there is not just one single reason but a continuous combination of many factors:

Firstly: Speculative bubble

In the 1920s, stocks were overpriced due to a wave of speculation. Many ordinary investors even borrowed money to buy stocks, hoping that prices would continue to rise. When investors lost confidence, stock prices plummeted in an instant - and millions of Americans lost all their savings overnight.

Monday: The chain reaction in the banking system

When losing money, people hurriedly rush to the bank to withdraw their funds. But the bank doesn't have enough money because they have lent it all out. The wave of bank failures spreads across America. Worse, at that time there was no deposit insurance, so people lost all their savings.

Tuesday: Erroneous trade protection policies

The American government created many tariff barriers (The Smoot-Hawley Act of 1930 ) to protect the domestic industry. The result? Other countries retaliated with similar measures, causing international trade to be almost completely “shut down.”

Wednesday: The vicious cycle of lost consumption

When there is little money and fear, people cut back on spending. Businesses sell less and have to lay off employees. Employees losing their jobs then decrease their spending again. This cycle repeats itself without a chance for natural recovery.

The Price to Pay

The number speaks for itself:

• The unemployment rate in some countries reaches 25%
• Millions of people are homeless, forced to live in the wild.
• Thousands of businesses - from small shops to large corporations - have gone bankrupt.
• Industrial output has sharply declined

But the impact does not stop at the economy. Economic difficulties lead to social instability. Many countries have witnessed the rise of extreme political movements - and this is one of the factors leading to major conflicts thereafter.

How to overcome?

The recovery does not come quickly. It comes from a combination of:

1. Government intervention: President Franklin D. Roosevelt of America launched the “New Deal” - a bold set of relief and economic reform programs. Public works projects were initiated to create jobs, and regulatory agencies were established to oversee banks and the stock market.

2. New protection system: Countries begin to build social safety nets: unemployment insurance, pensions, and other welfare programs.

3. World War II: The government's large investment in the defense industry has created a multitude of jobs and boosted production, ultimately helping the economy recover from recession.

Lesson for today

It's not just a historical story. The events that occurred in the 1930s still influence how leaders handle crises today:

• Nowadays, banking regulatory agencies have deposit insurance to prevent the cascade effect from a bank's bankruptcy.
• Monetary policy is being monitored more closely.
• Governments are ready to intervene when a crisis occurs.

But the deepest lesson? Our economy is more fragile than we think. A loss of confidence can spread quickly, poor decisions can have global consequences, and coordination is needed, not isolating protectionist policies, to overcome the crisis.