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News Link • Stock Market

The Depression Playbook

• zerohedge.com by Jeff Thomas

Wise are those investors who now get out of debt.

— Roger Babson, September, 1929

In the run-up to the 1929 crash, which heralded in the Great Depression, many pundits claimed that the new highs in the market signified that the business cycle had been "repealed."

Stocks had never enjoyed such a bull market before, and this led many to believe that "the sky's the limit." All over the US, people put all the money they could find into stocks. Then, wanting to buy more, they bought on margin. Then, wanting still more, they borrowed privately to buy on margin - a double-dip into debt.

In essence, this meant that a large portion of the extreme bull market was the result of stock investments that were made with money that didn't exist - a mere "promise" to somehow pay, with nothing to back that promise up.

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