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The Great Depression: The Biggest Financial Crash in History


Wall street in panic during the great depression

The Great Depression remains the most devastating financial crisis in history, leaving millions unemployed, businesses bankrupt, and entire economies shattered.


In this post, we will explore the events that led to the Great Depression, its impact on the world, and the lessons we can learn from the legendary traders who managed to profit during these tumultuous times.


The Roaring '20s: Inflating the Stock Market with Low Interest Rates and Post-WWI Policies


The Dow Jones Industrial Average increased more than 300% between 1924 and 1929.


"In the 1920s, America enjoyed a period of unbounded prosperity." - Robert Sobel


After World War I, the U.S. economy experienced a period of rapid growth and prosperity, known as the Roaring '20s.


Low-interest rates, post-war policies, and technological advancements fueled a booming stock market. However, this growth was unsustainable and ultimately set the stage for the Great Depression.


Black Tuesday: The Stock Market Crash Caused by Rising Interest Rates and Margin Buying


On October 29, 1929, the stock market lost nearly 13% of its value in a single day.


"When the crash came, it was like a nightmare turned real." - John Kenneth Galbraith

Black Tuesday, October 29, 1929, marked the beginning of the Great Depression.


Rising interest rates and excessive margin buying created a speculative bubble that eventually burst, sending stock prices plummeting and wiping out billions of dollars in wealth.


Banking Crisis: Stock Market Losses and Loan Defaults Lead to Bank Failures


Over 9,000 banks failed during the 1930s.


"Banking establishments are more dangerous than standing armies." - Thomas Jefferson


The stock market crash devastated banks, as their investments in stocks and loans to marginal buyers became worthless.


As people defaulted on loans, banks' reserves dwindled, leading to widespread bank failures and a collapse of the banking system.


The total amount lost is estimated to be around $140 billion in today's dollars in deposit savings.


America's Economic Reaction and Recovery


Unemployment peaked at nearly 25% in 1933.


"The only thing we have to fear is fear itself." - Franklin D. Roosevelt


The Great Depression had far-reaching economic consequences, causing high unemployment, falling wages, and reduced global trade.


The government eventually intervened with the New Deal, a series of programs and policies aimed at stabilizing the economy, creating jobs, and preventing future depressions.


Legendary Traders: Profiting from the Great Depression


Some investors, like Benjamin Graham, managed to achieve annualized returns of 20% during the Great Depression.


"The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell." - Sir John Templeton


Despite the widespread financial devastation, a few legendary traders managed to profit during the Great Depression.


Investors like Benjamin Graham, John Maynard Keynes, and Jesse Livermore recognized opportunities amidst the chaos, using contrarian strategies, short-selling, and value investing to capitalize on market inefficiencies and make substantial gains.


In conclusion, the Great Depression was a monumental event in financial history, offering valuable lessons on the dangers of speculation, the importance of a stable banking system, and the resilience of the human spirit.


By studying the past, we can better prepare for the future and navigate even the most challenging market environments.



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