How Today's Economy Mirrors the Great Depression of 1929

In 1929, almost 100 years ago, the world was hit by the most brutal recession ever in history. The fear turned to panic. Brokers began unloading margin accounts. In less than 2 hours, nearly 10 billion invested in stocks was simply wiped out. This wasn't some.com bubble killing a few tech companies or the 2008 US housing crisis, which mostly affected Western countries. The Great Depression, which very much started by the mistakes that people made in that building, hit almost every single country in the world and it almost starved part of the US population. And there were three core causes, like three core triggers that caused that recession. And I'm going to get to each one of them. And the real problem though is that those

triggers were woringly and dangerously similar to some stuff that we're experiencing today. So, I decided to dig through the details, dig through the subtext to try to understand if this is some sort of dark sci-fi loop where history is about to repeat itself. Now, one of the first culprits of the 1929 depression was debt. Debt was unlike anything the world had seen at the time. Picture this. The Great War had just ended. The Allies #team USA won. And then the country is about to go through this postwar economic boom. war miracle. New tech and industry that evolved for the war could now be used for notwar and mass production made even more products affordable for everybody. People were jumping on the hype of all this new

technology. And a lot of that growth was fueled by loans. Now, as bad as debt feels, loans aren't bad. Like debt can fuel and accelerate industries. In the 20s, it fueled farmers, for example. It allowed them to transition from hard labor to tractors and to expand their land. It allowed factories to ramp up production to hire more people and people with jobs would spend money to buy those very goods and services and they use that to finance new houses and then the economy thrives and not just people but countries. The US became a lending country a creditor or a nation and the world's largest that meant banks and investors exporting capital lending or investing in Europe or Latin American countries generally some debt

is good. It is the price of faster progress. Now, the prosperity was translated into the stock market as well. The Dow Jones Industrial Average grew six times between 1921 and 1929, in part fueled by the stocks of all these new tech companies that were going to transform the world. So, here's an idea. Why don't we invest in the stock market? Now, let's say that you want to buy some 1920s Tesla stock cuz you're absolutely sure that stock is going to go to the moon. So, you've got $10,000 that you'd like to invest. At the time of writing, one Tesla share is $425. So you've got enough for about 23 shares. So let's do it. You buy in and let's assume that after a few months the price of that share has gone to $470 per share. That's about a 10% gain. Okay. So

you've turned $10,000 into about $11,000. Great for you. But 1920s banks came up with a much better deal. What if you can also borrow money to buy more shares? So instead of buying $10,000 worth of shares, which is what you have, well, you can use the $10,000 as collateral to a $100,000 loan. And you use that loan to buy your shares. And now you can afford $230 shares instead of just 23. So if the price per share increases by the same $45 as before, the same 10%. Well, this time you'll make over $10,000 because you have 10 times the number of shares. So, in other words, a 10% growth in one stock doubles your money, doubles the money that you invested. And in the economy of the roaring 20s, that stock is just going to

go up, right? This is called margin trading. It existed long before the 1920s. That's the first time that it was widely used and the first time retail investors had access to it. And this was key to the debt problem that triggered the crisis because this worked. I mean at first it worked. Remember this is a six times 6x growth in the stock market in under a decade. But too much of that was value that retail investors had created people who had no idea how to invest. Too much of that value was leveraged trades. So, just like you could double your investment, if this Tesla stock falls 10%. Your losses are now over 10%. And remember, that's all the money that you invested originally. The rest of the money was borrowed. So, if the

Tesla stock falls 20%, you actually own money to the broker that lent it to you in the first place because your collateral, the stock, no longer covers that value. On Black Thursday, October 24th, 1929, this house of cards fell down in a matter of hours. Other factors were at play here, of course, like the Fed increasing interest rates to stop inflation and speculation, complete loss of confidence in the market, but the aftermath of the depression was brutal and it lasted for years. Years of booming prosperity ended in catastrophe. It was the biggest stock market crash since records. Thousands of banks failed. Millions lost everything. So, in 1929, when your bank failed, all of your money was lost with it. Legend

has it that people jumped out of windows here in Wall Street, although there aren't any official accounts about that. The US did hit its highest suicide rate in history during the crisis. And I guess imagine taking your life because you've made a mistake in a margin trade. On a summer night in 2020, a young man received a notification on his cell phone. When he read it, he realized his life was over. and his Robin Hood account showed a negative balance of more than $700,000. Thought he blew up his life. He thought he screwed up beyond repair. Today, platforms like E Toro let you trade some commodities with 100x leverage. 100x, that's you spend $100 to buy $10,000 worth of gold where a simple 2% swing already deletes all of

your money. Please don't don't do it. Now while some laws like recti to try to block extreme leveraging in the US we found a workaround of course Robin Hood for example lets you use options and swaps with which let you gamble I mean invest the same way this stuff is widely available now with very few guard rails but that's not all of it like most estimates agree that less than 10% of households were invested in the stock market when it crashed in 1929 today 62% of American individuals report owning stocks and that's not counting 401ks, retirement funds in the US that are often directly or indirectly invested in the stock market. At least 43% of retail investors use some form of leverage in their trades. That is, they're buying more stock

that their cash can afford. America's economy is the stock market and it's at an all-time high and it's highly leveraged. And debt is also a problem today. Like pre- great depression, all active home mortgages represented 10% of America's GDP. By the end of the decade, that was 32% of GDP. Today, American mortgage debt is 70% of its GDP, $18 trillion and some in total household debt. In Australia and Canada, mortgage debt is higher. It's higher than the country's entire GDP. And perhaps more crucially, remember the aftermath of the 1929 crisis. The reason why it had echoes all over the world was because the US was a lender. The rest of the world needed that American capital to grow their

economies. But when this well dried out, that made this crisis widespread. Today, the US isn't a lender anymore. The US is a borrower. It's the largest borrower in the world. About 25% of its government spending is financed by foreign capital inflows, 1.1 trillion from Japan. And the US gets to do this because there's confidence in the US economy. But what happens if that confidence breaks? Hold that thought. Right now, the confidence of what we'll be able to build thanks to all these new technologies, that's at an all-time high. Companies are moving really fast to level their products before the

competition does. And G2I can help do exactly that because hiring engineers is hard. It's timeconuming. But G2I connects you to prevetted either contract or full-time engineers so you can skip the boring part and get straight to the quality candidates. Every engineer has five plus years of experience across different tech stacks. You'll also get recorded technical interviews that show exactly where each candidate excels and where they can improve. G2I has worked with Meta, with Microsoft, Ninja 1, Shop Monkey, and hundreds of other tech companies to fill up their talent gaps, cutting their hiring time by over 60%. They pitched into the production of this section of the video, and they're offering you guys

a $1,500 credit on your first invoice if you mention Slight Bean when you book your first call. Thanks again to G2I for supporting our channel. Now, let me get back to the stock market because it wasn't just that the money and the instruments to gamble, I mean to invest to invest were there. It's that there was this crazy tech optimism through the 1920s. Now, one big jump around these decades was in aeronautics. So, in 1927, Charles Lindberg made the first solo non-stop transatlantic flight in the spirit of St. Louis and Wright Aeronautical Corporation and other aviation stocks all soared after that. But the real deal was radio.

It's middle 1920s and radio's just outgrown its crystal set era. The mounted policeman gets instructions by radio. Free baseball goes to bat via radio. Marian Pali sings in New York for a radio audience of 16 million listeners. Americans spent $60 million a year in radios in 1922, which skyrocketed to $800 million a year by the end of the decade. Radio was like the internet and AI all combined into a single company. In this case, the Radio Corporation of America. RCA became the darling company. Earnings 10xed between 1925 and 1928. But most crucially, their stock saw a 200x increase that peaked, of course, in 1929. And maybe the last comparable on the tech category, one that isn't talked about as

much as the stock market is capex. Cuz all this radio tech in the 1920s required electrification. So this is infrastructure that private companies had to build and also funded by selling stocks or with corporate debt. And all these companies had a kind of a pointy structure where you had this parent company that would own a bunch of subsidiaries which in turn owned other subsidiaries and they often funded debt in shady manners. So this thing made the entire thing very volatile. Now compare that to today. US corporate bonds as of Q225 are 11.4 trillion. That's money that companies have borrowed. And there's that weird like OpenAI, Nvidia, Oracle loop situation. Basically, AI is this decade's radio

to nearly 7 gawatt and more than $400 billion of investment over the next 3 years. This is just the first Stargate data center. The goal is to have at least 20 of these. This is the biggest AI infrastructure project in history. This is the largest computing project in history. feeding and hyping all these big tech stocks, all fed by the excitement around automation. But nobody likes to talk about the last piece of the puzzle, hidden reality that lurked through those roaring 20s that wasn't in the charts that most definitely wasn't reflected in the stock market, and that's inequality. And you know where I'm going to go with this. We have to put Bernie on

the top 1/10enth of 1%. Not 1% onetenth of 1%. Okay, so let me try to do a better job of explaining that. This is how 1929 looked. So the wealthiest 1% received about 24% of all income. What this means was that over 60% of families lived on $2,000 a year or less, which is the minimum or was the minimum for the bare necessities. Now at that line, a family's budget was almost gone completely on rent, food, coal or kerosene and clothing. No cushion, no savings. In cities, most apartments had lights, but not so much private bathrooms. Out on farms, only about 1 in 10 had electricity by 1930, but this joined the modern age momentum. People were buying radios, and they were buying appliances on installments, and it all

looked like prosperity. Automation meant more income was coming to the factory owners, but not for the employees, and wages were not keeping up with productivity. Now, this was a hidden reality during this prosperous 1920s. The University of Houston even called this the seeds of the depression and all that stuff was there despite what the stock market was saying. Now let's see how this evolved through the years. This is again the income from the top 1% versus the income for the bottom 50%. In the 60s income drastically increased for that bottom half and shrunk for the top 1%. This was America's golden years, the American dream and the picket fence. But something was about to break right

around the 70s which would start widening the gaps of income once again. This chart by the way comes from our video on AI productivity and how it could affect your salary. I'm going to link it later. But the point is today almost 100 years after we should have learned this lesson. Income inequality is almost exactly like 1928 levels. America's bottom 50% not just live paycheck to paycheck. They're probably funding essentials with buy now pay later. Like roughly four in 10 adults in the US say that $400 as an emergency would require borrowing or selling something. After COVID, household debt crept past the 2008 levels again and delinquency rates are on the rise and pretty steeply. Food insecurity is also on the rise. And look, I see

our channel stats. There's a good chance that if you're watching this type of content, you're in this other group. on top of you, you have all this very visible 1%, a 1% that makes up all of our media and it's this aspirational advertising, a 1% that's a reminder of the American dream that the middle class no longer lives. And if you could just get lucky on the next Bitcoin rush and buy those leveraged ETFs to get rich faster. What's your Bitcoin price prediction for the next 5 years? $1.3 million. No one's ever lost money buying Bitcoin. I know Chad GPT how to be rich.

Very rich. Our generation is practically defined by spending money that we don't have on that trip or that house that you couldn't actually afford. And investors have leverage on top of leverage. Billionaires today don't even want to own property cuz imaginary money in the stock market is way more profitable but also imaginary, right? if they all sold all of their stock, would that money still exist? So, how would a great depression look today where money isn't even backed by gold or anything? Or when the world is more intertwined than ever? When misinformation reigns over our news cycles, when people's ideologies are more divided than ever. Now, don't get

me wrong, these are parallels that are too obvious not to talk about, but there are also major differences. Money in our bank accounts is secured by the government for good or worse and unemployment insurance provides protections for millions of people. The 1929 economy was far more goods/industryheavy and modern America is much more services dominant and that changes how shocks could propagate in today's [clears throat] developed world though not necessarily for the rest. The most important difference today is hindsight because we know what the Great Depression meant to the world. We know what caused it and we can make sure that we don't make those same mistakes again, right? Thanks a lot for watching, guys.

If you enjoyed this video, you should look into that episode on AI productivity and how AI is here not so much for your job, but for your race. Catch you in the next one.