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US President Donald Trump has imposed tariffs on 60 countries. Due to this, there has been upheaval in the stock market around the world. In India, BSE has lost more than Rs 19 lakh crore.
Experts believe that it may increase further in the coming days. This is not the first time that a decision in America has shaken the world.
Learn about those 4 incidents in the story…
1929- Bought stocks with loans, bubble burst and ‘The Great Depression’
After the end of the First World War, America emerged as a super power of America. The economy here was growing rapidly. There was a understanding of the people about the stock market that it would always go up.
Because of this, people were also buying shares by taking loans. Investors used to invest 10 to 20% of their capital, taking loans from the rest of the broker. The US government did not ban this risky game. Then there was no agency to control the stock market.
By the end of 1928, share prices in the market increased significantly. Dow Jones was 63 points in 1921. After 8 years, it had increased 6 times to 381 points. On the other hand, the income of laborers and farmers in America was not increasing. The profits of the companies were touching the sky.
Due to this, there was a huge difference between demand and supply. Companies were making a lot of products but were not selling in that proportion. This affected the market. As soon as the shares started falling, people started selling their shares to repay the debt. It became a chain reaction.
Newspapers exaggerated the incident, which further increased the fear of investors. Small investors, who were in heavy debt at margin, were the most nervous.
There was a competition to withdraw money from banks, 9000 bank bankruptcy in 3 years
On 29 October 1929, the stock market declined by 13% in a single day. After this, the stock market continued to fall for several months, causing millions of investors to come to a huge loss. Banks attempted to recover their debt but investors did not have money.
Banks started failing due to non -receipt of loan money. People’s confidence got up from the bank. They began to withdraw their deposits. Long queues of those who withdraw money in front of banks started. This worsened the condition of the banks. Between 1930-33, more than 9,000 banks in the US went bankrupt.
Unemployment in the country increased from 3% to 25%. More than 1.5 crore people became unemployed. Many industries were closed and people started begging on the streets.
In the first economic recession, the employment of one and a half crore people of America was taken away.
This recession spread all over the world. Jute, cotton and tea exports in India were affected. Farmers’ income was lost. The Indian industry was also affected due to low demand for British goods. This economic crisis further increased the dissatisfaction against British rule, the demand for independence in India intensified. The effect of this recession lasted for 10 years.
Apart from India, political instability spread due to this recession in many countries. This recession is believed to be the reason for the arrival of Nazi party in Germany and the beginning of the second World War.
1971- Dollar two gold and fail
By the Second World War, most of the countries used to issue the same value as gold reserves. The system changed with the introduction of Bretton Woods system in 1944. Then delegates from 44 countries of the world were found and the exchange rate of all currency was fixed against the US dollar.
The US had the highest stores of gold and the world’s largest and stable economy then. The US then promised that any country can turn its dollar into gold. It was called ‘Gold Window’. When this was promised, the US had 20 thousand tons of gold, which was 70% of the world.
However, after 30 years, the system started failing. Actually, America, Vietnam was entangled in the war. He had thrown several billion dollars in this war. He was continuously printing the dollar to meet the dollar deficiency.
The world started sending their ships to America to buy gold
France openly opposed this. President Charles de Gaul said that Bretton Woods System greatly benefits the US as it can print the dollar without any limit. They broke the system and started buying gold instead of dollars.
From 1965, France started getting gold from the US and Britain by filling the dollars in its ships. 3,313 tonnes of gold was ordered in 3 years. Seeing France, countries like Germany, Switzerland, Britain and Japan also started doing this. In this concern, the rest of the countries also started doing so.
France sent 44 ships in 3 years to get gold back from the US.
By the beginning of 1971, the US had left gold worth only $ 10 billion. At the same time, foreign countries had deposited 40 thousand billion dollars. That is, America could never give gold worth the same price to other countries.
On 15 August 1971, US President Richard Nixon ended the Gold Standard System. He also imposed a 10% tariff on foreign goods. It was called ‘Nixon Shock’. The next morning, when the world woke up, there was a stir in the financial markets.
The stock markets of Europe and Asia declined by 3-5%. The price of the dollar in the foreign market immediately fell. This was the first time the price of the dollar began to decide the market. In the long run, America was damaged and relations with many countries deteriorated. Oil prices rose four times. The world could overcome it in 1975.
On 15 August 1971, US President Richard Nixon announced the end of the Gold Standard System on TV.
1981- The worst day of the stock market, named- Black Mande
Ronald Reagan reduced taxes on becoming President in 1981, further opened the market for government expenses. Due to this, the market around the world gained momentum. Dow Jones was at 777 points in 1982, reaching 2,722 points in 1987.
Everyone was making money on Wall Street. Interest rates were increasing, there was fear of inflation, and betting in the market was at its peak. Nevertheless, no one had an idea that a storm was going to come. Meanwhile, on 16 October (Friday), it was reported that the US government could change the tax rules. This will make the takeover of companies difficult.
The newspapers exaggerated this news and after two days, the Mande who came after two days is still mentioned by ‘Black Mande’. On October 19, the New York Stock Exchange (NYSE) began with a decline with a ringing ring that continued until the closure.
Charges on computer, 45.8% dropped in a day
Computer contributed the most in this decline. Actually, the use of computers in the stock market started at that time. As soon as the selling started in the market, people took advantage of the technology and sold more and more stocks. This led to the market falling faster.
Dow Jones recorded a decline of 508 points (22.6%) in a single day. This was the biggest decline in the US stock market ever. In the US, assets worth more than $ 500 billion disappeared in a day.
The Dow Jones stock market in the US recorded the biggest decline in a day.
It also affected the rest of the countries. The market fell 45.8% in Hong Kong a day. Because of this, the market had to close for the next four days. The stock market in Australia went down 41.8%. Japan’s stock market Nikkei also closed at 14.9%, which was the biggest decline of that time.
The effect of this was that the trust of the investors was shaken, and many small traders were wasted. Many people felt that it was the beginning of recession like 1929. But this did not happen. The Federal Reserve immediately reduced interest rates and inserted cash in the market. By 1989, the world’s stock markets recovered from it.
2008- Lehman Brother Duba Broken American Dream, Aya- The Great Resation
Everything was shining in the US in the early 2000s. The economy was growing, and everyone was trying to make their ‘American Dream’ to come true. The word ‘American Dream’ came after the Great Depression 1929. People were then living in poverty and the word gave him a hope.
American Dream means to achieve everything from hard work. A house, a car and a good life. Banks and the government made it easy. The interest rates were low, and buying a house looked much cheaper than before. The bank was giving a lot of loans for this.
People started buying houses with a loan and selling and making strong profits. In many cities of America, the prices of houses started touching the sky by 2006. In just five years, it became doubled.
Writer Michael Lewis writes in his book ‘The Big Short’- a waiter was buying three houses in Las Vegas, a driver in Miami four. Bankers were earning bonuses, and the government was silent.
Employee carrying his belongings from the bank after the lehman Brothers drowned.
India’s stock market dropped 52% in 2008 recession
By the end of 2006, the wind began to change. Banks increased interest rates. Due to this, the prices of houses which were increasing by 10% annually started falling. The disadvantage of falling prices was that the borrowers were unable to pay their debt. Lakhs of houses were confiscated by the end of 2007 due to non -payment of loans.
Due to this, the prices of homes fell to 30%. In September 2008, the fourth largest bank in the US, Lehman Brothers, went bankrupt. This news brought a tsunami in the market. One day Dow Jones fell 4.4%. It had fallen 777 points in a week, which was the biggest decline after the 9/11 attack.
Banks stopped lending to each other due to Lehman’s bankruptcy. This stalled the credit market. In 2007, the US stock market was above 14 thousand, it had fallen to about 6500 points by March 2009. The $ 8 trillion dollars were ruined.
This economic devastation was seen worldwide. By the end of 2008, Britain’s stock market had fallen 31%, 40% of Germany, 42% of Japan and 52% of India. The entire banking system of Iceland had failed. There were 26 lakh jobs in America. Unemployment had reached 10%. Millions of people worldwide became homeless. It took 5 years to overcome the world market.
Source
1. https://www.thegoldobserver.com/p/how-france-secretly-repatriated-all
2. https://www.theguardian.com/business/2021/aug/15/rise-of-cryptocurrencies-can-be-traced-to-nixon-abandoning-gold-in-1971
3. https://qz.com/1106440/black-monday-1987-the-stock-market-crash-that-was-so-bad-hospital-admissions-spiked
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