Sunday, January 23, 2005


The Crash of '29

A quick comment on the stock market and the //'s between 1929 and the present:

In '29 there was indeed a bubble, but - and here we can thank our politicized education system, amongst others, for some common misperceptions - it was not caused by rampant stock speculation; let's distinguish cause from effect here.

Then, as now, stocks were - to most people's surprise, actually - a much smaller market than bonds. Bonds are where the real money was, 15-20 times as much, IIRC. I haven't looked up the current ratio lately, but suspect it has changed little over the years.

Anyway, govts worldwide were in trouble, with defaults on the horizon. Bond markets were getting a whiff of this, but it took awhile in the pre-computer days for the information to make the rounds.

Guess what happened? As fear of a bond collapse spread in the marketplace, the smart money looked for safer investments. At first, that was in stocks. So ... what happens when even 5% of the bond money tried to move over? Remember, even 5% of the bond market is enough money to drive stocks thru the roof.

Stocks took off, that's what, to undreamt-of heights. After that, the elevator boys & everyone else jumped in, but they were merely chasing a trend started by others.

It is one of the historically "great" triumphs of propaganda that the crash was subsequently blamed on capitalism in the private sector, when its real cause was govt default in the public.

[I sure hope it doesn't happen again. There's a lot of debt in Western society at present, and a demographic time bomb to boot. If it blows, it's multi-generationally important that we not fall for the same trick twice]