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Its often called the greatest financial crisis in the history of the United States because
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it lasted ten years and crashed the entire economy.
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The American leadership tried everything to save the economy but nothing worked out, every
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solution proved to be ineffective in the face of such a crisis, and the only thing that
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could save the economy was the deadliest war in human history (WW2).
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Its July of the year 1914, world war one breaks up, and the entire European continent is in
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conflict, but the war slowly spreads to the rest of the world.
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Everyone is eager to win, but unfortunately, supplies are limited especially food.
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So the allies turn to the United States for help, since it wasn't directly affected
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by the war and had the economic power to do that.
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War by no means is good, but it brought a period of economic prosperity to the United
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States.
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The demand for equipment, weapons, wheat was at an all-time high, and no one else could
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fill that gap except the US.
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If you were a farmer, you could produce as much wheat as you wanted and could sell it
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easily at a high price.
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Since countries with troops at the battlefield had to take any measures to win the war.
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By the end of the war, the United States also entered the game which further increased the
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demand since soldiers needed equipment and food.
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It was probably the best time to invest since the economy was booming and everyone was making
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money.
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Even though the war has ended by 1918.
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The demand for American goods especially wheat didn't fall because the entire world was
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still recovering.
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When farmers realized that, they began taking huge loans to buy more land and equipment
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to farm more wheat.
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Which led the real estate prices to grow.
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That pushed people to buy even more lands hoping to sell it later for a higher price.
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The same thing was happening to every other industry.
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In fact, many companies emerged that only existed on paper but didn't even have the
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equipment or land because everyone was throwing money into the stock market hoping to make
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a fortune, which further escalated the prices.
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Would you really stand aside and watch how your neighbors make money while you get nothing.
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Even foreign countries started investing in the united states hoping to make a buck.
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I guess you can already see the flow.
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Many companies were overpriced since most of these investments were based on speculations.
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Nonetheless, that didn't stop people from investing.
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People had faith in the economy.
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When things are good, you start thinking that it's going to be like that forever.
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What seems so obvious today wasn't obvious then.
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However, When Europe started recovering, the demand for American goods fell, especially
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for wheat, since other counties began to grow wheat as well.
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In August of 1929, France and Italy were bragging of a magnificent harvest, while the US had
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millions of bushels of wheat on the shelves that they couldn't sell.
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This oversupply threatened to drive the prices down.
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It caused a little panic in the stock market but didn't cause anything significant.
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A month later, the wheat prices decreased from $1.49 per bushel to $1.31 because of
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the oversupply.
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It was devastating news, the stock market plummeted.
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People got frightened and began to sell their stocks to cash out before the stock market
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declines further.
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That only made the situation worse crashing the market even more.
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That day, October 29th went down in history as Black Tuesday.
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However, that was just the beginning.
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Since wheat prices were falling, farmers couldn't pay back their debts, that created pressure
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on the banks.
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The panic has already spread to the entire country, and all that people cared about was
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cash, so they rushed to the Banks for their savings.
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Unfortunately, banks couldn't pay back their obligations since their borrowers weren't
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able to pay them back their debts so they had to shut down one after one.
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In just ten months, 744 banks failed.
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It didn't matter whether you had a good or bad business, people lost faith in the market,
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and all that mattered was to minimize the losses.
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As a result of the that, even good legit business started declaring bankruptcy.
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The news spread to Europe and caused panic over there since many European countries have
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invested heavily in the United States.
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The panic caused the same thing over there, and soon the entire world was facing a great
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depression.
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Although this crisis happened almost a hundred years ago, financial crises, in general, are
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pretty similar, including the dot-com bubble of the 2008 crash.
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And the next global recession is going to take place in a very similar way.
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Nobody really knows for sure how and when exactly its going to start but we have multiple
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bubbles that are big enough to burst at any moment such as student loans, healthcare and
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most important the stock market itself.
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circles Since the last crisis, S&P500 has increased
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dramatically, this growth is definitely unsustainable and when it crashes, it's going to create
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a panic that's simply going to make things much worst.
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Graph 3 doors
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You can't really avoid the recession because the world economy is so interconnected and
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dependent on each other that a crisis in the largest economy in the world, will take down
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the rest of the world with it.
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But the recession isn't going to be forever, it might last a year, maybe two, maybe 5 but
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eventually it will recover.
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Just a year after the 2008 crash, in 2009, the sp500 increased by 26.5 percent.
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So don't panic and sell your investments when the media will be shouting all over the place
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that if you won't sell now, you are going to lose every damn penny you have invested.
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Of course, some companies won't survive the crisis and go bankrupt as it happens in every
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crisis, but if you are an investor in an index fund, you should be fine.
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You probably will lose your job because companies will start cutting cost in order to survive,
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so if you are not vital to their survival, you might be unemployed, so make sure you
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have some savings on the side, at least.
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But the smartest investors will start investing heavily because prices will be at their lowest
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point.
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And once the economy recovers, they will be much wealthier.
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That's why they say, the rich get richer.
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The topic of the global recessions never ends, that's, why the media started talking about
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it even before the last crisis, ended but this video has to.
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So thanks for watching and until next time.