The Great Crash & Economics

Bull/Bear market

A "Bull" market is a period of rising stock prices, while a "Bear" market is a period of falling prices. ACE: The long Bull Market of the 1920s created a false sense of security among investors, making the eventual transition to a Bear Market in 1929 psychologically and financially devastating.

Margin Buying

Purchasing stocks by paying only a small percentage of the price (often 10%) and borrowing the rest from a broker. ACE: Margin buying inflated the stock market bubble because it allowed people to trade with money they didn't have, leading to a massive wave of defaults when prices began to slip.

Stock Speculation

Engaging in risky stock transactions in the hope of making a quick profit rather than long-term investment. ACE: Widespread stock speculation ignored economic fundamentals, causing stock prices to rise far beyond their actual value and setting the stage for the 1929 crash.

Interest Rates

The cost of borrowing money, usually determined by the Federal Reserve. ACE: Low interest rates early in the 1920s encouraged over-borrowing, but when the Fed raised rates after the crash, it tightened the money supply and worsened the economic downturn.

Defaults

The failure to repay a loan or fulfill a financial obligation. ACE: As unemployment rose in the early 30s, massive defaults on mortgages and car loans caused banks to lose their capital and eventually collapse.

Bank Run

A phenomenon where many depositors withdraw their money simultaneously, fearing the bank will fail. ACE: Because banks did not keep all their cash on hand, bank runs led to the closure of thousands of institutions, wiping out the life savings of millions of Americans.