Until September 2008, the main policy response to the crisis came from central banks, which lowered interest rates to stimulate economic activity, which began to slow in late 2007. However, the policy response intensified after the collapse of Lehman Brothers and the slowdown in global growth. Well, it destroyed a lot of wealth. There is what is called the prosperity effect. So if you were an investor in the stock market and a lot of middle-class people went public for the first time in the 1920s, there were a lot more purchases of shares on credit. It was the great credit boom. And so a lot of ordinary people like us became public, but it was still pretty much a game for rich men. Rich men have lost a lot of money. Some of them jumped out of the Wall Street window, and with their declining wealth, they could certainly afford to buy far fewer goods and services than before. So there is a prosperity effect that counts.
Uncertainty about the economy, even if you`re not a stock market investor, but you`ve seen the smart rich jump out of Wall Street windows, you have to ask yourself. What the hell is going on here? Is that really healthy, a sign of a healthy economy? Well, probably not. So there is a huge collapse in world trade. I stole that picture, I mean, I borrowed that image [audience laughter] from a book called The World in Depression by Charles Kindleberger, an economist and economic historian at MIT. And he looked at the collapse of world trade during the Great Depression and I thought that was a cool chart because it just shows this downward spiral of world trade that took place during the Depression, from about three billion dollars of trade in 1929, it collapsed by two-thirds to less than a billion dollars in 1933. Thus, the global economy that is traded contracted by two-thirds, while the U.S. economy contracted by one-third, which was a much larger collapse than the total amount by which the U.S. economy collapsed. In the years leading up to the CCA, economic conditions in the United States and other countries were favourable. Economic growth has been strong and stable, and inflation, unemployment and interest rates have been relatively low. In this context, real estate prices have risen sharply. The 1920s were a period of great economic hardship and political instability for Newfoundland and Labrador.
The First World War increased the country`s debt by $35 million, severely hampering all interwar governments. Most of these costs came from the government`s decision to establish, equip and train its own regiment overseas. Political controversy also marked the final years of the war, when rival parties debated whether or not to introduce conscription. The ruling party dissolved in 1919, creating an atmosphere of political upheaval that lasted for the next 15 years. Scandals became commonplace in the House of Assembly, making it difficult for successive governments to cope with the financial difficulties of the 1920s and 1930s. Economic conditions refer to the current state of the economy in a country or region. These conditions change over time, as do economic and economic cycles, as an economy goes through periods of expansion and contraction. Economic conditions are considered strong or positive when an economy expands and are considered unfavourable or negative when an economy contracts. There have been some positives in Newfoundland and Labrador`s economy. The Bell Island mine exported large quantities of iron ore to Germany in the 1920s, and in 1928 a new lead and zinc mine was brought into production at Buchans. Paper exports also performed well, with mills in Corner Brook and Grand Falls.
By the 1926-27 fiscal year, the island`s export earnings had almost returned to pre-war levels, largely due to gains in the forestry and mining sectors. In addition, in 1927, the Judicial Committee of the Privy Council settled the Labrador boundary dispute by granting Newfoundland sovereignty over the northern territory, where untapped natural resources promised future wealth. In times of economic recession, consumers stop spending money, forcing companies to reduce production. With less production, companies begin to lay off employees, which increases the unemployment rate. A healthy unemployment rate in the United States is between 3% and 5%. At the height of the Great Depression, the unemployment rate peaked at 24.9 percent in 1933—12.8 million Americans out of a population of 125.6 million—and was still at 17.2 percent in 1939. The regulation of subprime loans and MBS products was too lax. In particular, there was no insufficient regulation of the institutions that created the complex and opaque MBS and sold it to investors.
Not only did many individual borrowers receive loans so large that they probably wouldn`t be able to repay them, but fraud became more common, such as overvaluing a borrower`s income and promising investors the safety of the MBS products they were selling. Now, what happens when a country raises its tariffs? They all did it – it was retaliation. Canada has increased its tariffs, Britain is raising its tariffs, France is raising its tariffs. So everyone builds these walls against trade to protect their domestic industries from foreign competition, and in the end everyone loses. In general, economic indicators can be classified as advanced, consistent or lagging behind. That is, they describe likely future economic conditions, current economic conditions, or conditions of the recent past. Economists tend to focus more on leading indicators to understand what economic conditions will look like over the next three to six months. For example, indicators such as new industrial goods orders and new housing permits show the pace of future economic activity in terms of manufacturing and housing output rates. Despite a constant budget deficit, the Newfoundland and Labrador government borrowed heavily from foreign investors in the 1920s. Some of that money has been used to diversify the country`s economy into areas other than fishing. For example, money from the United Kingdom helped build a large newsprint mill in Corner Brook, while American and British investors helped finance a new lead and zinc mine in Buchans.
However, these developments required the government to upgrade existing roads or build new ones and to install various utilities in Corner Brook and Buchans. The government could only afford these costly efforts by borrowing more money and taking on more debt. And so it had a measurable effect. That is, the stock market crash had a measurable effect on spending. And then there is the role of banks. Banks were heavily involved in lending to investors on the stock market; Many banks have failed as a result. So there is this link, because part of the financial fabric was involved here. In addition, banks and some investors increasingly borrowed money for very short periods, including day-to-day, to buy assets that could not be sold quickly. As a result, they became increasingly dependent on lenders – including other banks – who made new loans when existing short-term loans were repaid.
As anyone who has read “The Great Gatsby” or seen “Chicago” knows, the time commonly known as “Roaring Twenties” preceded the crash. It was a period of exorbitant economic growth. Between 1922 and 1929, the gross national product grew at an average annual rate of 4.7 per cent, while the unemployment rate rose from 6.7 per cent to 3.2 per cent. Total wealth in the United States has more than doubled, although most of this growth has been experienced by the wealthiest Americans. Americans have also begun to invest in the market on a large scale. The Great Depression was the worst economic period in U.S. history. But not everything was as roaring as it seemed.
Consumers were spending money they could afford, and companies were producing too much to meet that demand. Financial institutions have become heavily involved in stock market speculation. In some cases, they created subsidiaries that offered their own securities. The brokers secretly sold their own shares – which would be an obvious conflict of interest today. Well, the stock market crash is the preferred cause of the Great Depression. We had a stock market crash in the fall of 1929, immediately we had the Great Depression, so if — I knew Latin for that, that`s what it was — post hoc ergo propter hoc — one after the other. Therefore, the former caused the latter. So the consensus among economists – excuse me, economic historians – is that the stock market crash had some effect.