Crashes and the rules they brought · 1929–1950s
1929–1933
The Great Depression
Prices fall by about a quarter, thousands of banks fail and a quarter of workers lose their jobs.
From 1929 to 1933, US output collapsed and prices fell by roughly a quarter. Waves of bank runs closed thousands of banks, and unemployment reached about 25% in 1933.
Falling prices made debts harder to repay, which led to more defaults and more failures.
💡 Why it made sense then
It showed how panics, falling prices and bank failures can feed on each other, and it shaped the rules that followed.
Ideas it gave us
- 🌍 Deflation
Deflation is a sustained fall in the general price level. It sounds good, but it can make people delay spending and make debts harder to pay, which deepens downturns.
- 🏦 Bank run
A bank run happens when many depositors withdraw their money at once because they fear the bank will fail, which can make it fail even if it was sound.
- 🌍 Recession
A recession is a significant, widespread fall in economic activity that lasts more than a few months. A common rule of thumb is two quarters in a row of falling real GDP.
- 🌍 Unemployment rate
The unemployment rate is the share of people in the labour force who don't have a job but are looking for one. People not looking aren't counted.
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