The consensus is the conservatives "hands off" approach and easy credit after WW1 ALLOWED the great depression to happen !
if true I"ll pay you $10,000. Bet or run away once again with your liberal tail between your legs once again.
The 1920s Credit Bubble
More and more observers are noting similarities of our housing/credit crunch to the 1920s. Even a diary yesterday was entitled,
"The Great Debt Crisis Begins". Sure, you know that investors bought stocks on 90% margin in the 1920s, but are you familiar with the real estate boom, and even moreso the tremendous consumer credit boom, the unraveling of which had so much to do with making the recession worse when it hit in late 1929?
Like the present day, the 1920s was an era of technological innovation (cars, radios, mass production), financial innovation (installment buying), and employer productivity. It also almost exactly matched today's disparity of wealth, as the benefits of worker productivity were hoarded by corporations and the wealthy.
In this economic history diary, I explain the preternatural, eerie similarities of the 1920s credit boom to our own. We have indeed passed this way before.
I. The Great Inequality of the 1920s mirrored our own time
A
Statistical Portrait of the 1920s shows a vibrant and expanding continent-wide economy, that represented the largest creditor nation on the planet, but marred by a very unequal distribution of wealth:
While productivity surged over 30% in that period, worker's incomes increased only 11%.
Moreover, over 70% of American families lived in relatively strapped conditions according to the statistical abstract. The financial gains of the 1920s were vaccuumed by the very top strata:
Minimum income deemed necessary for a decent family standard of living: $2500
Percentage of American families with incomes under $2500 in 1929: 71%
Distribution of Wealth
Rise in per capita income for nation as a whole: 9%
Rise in per capita income for top 1% of population, 1920-1929: 75%
Percentage of savings held by top .1% of Americans: 34%
Percentage of savings held by top 2.3% of Americans: 67%
Percentage of American Families with no savings: 80%
[
Today, the top .1% once again owns 34% of the wealth; the top 5% owns 60%.]
Or, as more fully set forth in
Main Causes of the Great Depression
the rewards of the "Coolidge Prosperity" of the 1920's were not shared evenly among all Americans. According to a study done by the Brookings Institute, i
n 1929 the top 0.1% of Americans had a combined income equal to the bottom 42%...
Three quarters of the U.S. population would spend essentially all of their yearly incomes to purchase consumer goods such as food, clothes, radios, and cars. These were the poor and middle class: families with incomes around, or usually less than, $2,500 a year. The bottom three quarters of the population had an aggregate income of less than 45% of the combined national income; the top 25% of the population took in more than 55% of the national income.
If, exactly like today, the middle and working classes were not sharing in the huge expansion of overall wealth in the 1920s, from a truly robust and growing national economy, there was another innovation which allowed them to at least think -- again, just like today -- for a while that they were on their way to riches: installment consumer credit.
II. The 1920s Credit Bubble spawned 3 asset bubbles
In a major paper by the Bank for International Settlements, "The Great Depression as a Credit Boom gone Wrong" Barry Eichengreen and Kris Michener (2003) set forth how the dramatic expansion of credit in the 1920s set the stage first for overconsumption, and then the drastic decline of the great depression:
The 1920s was a decade of expansion, reflecting recovery from World War I, new information and communications technologies like radio, and new processes like motor vehicle production using assembly-line methods. Accounts of the twenties in the United States ... emphasize the ready availability of credit, reflecting the ample gold reserves accumulated by the country during World War I, the stance of Federal Reserve policies, and financial innovations ranging from the development of the modern investment trust [i.e., mutual fund] to consumer credit tied to purchases of durable goods like automobiles. Credit fueled a real estate boom in 1925, a Wall Street boom in 1928-9, and a consumer durables spending spree spanning the second half of the 1920s.
Let's examine these bubbles one at a time. III. The 1920s real estate bubble
The 1920s Credit Bubble
