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The Federal Reserve System is the central banking system of America and is the gatekeeper of the U.S. economy.

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Comparison: What Happened in the Two Crashes

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Comparison: What Happened in the Two Crashes

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Preceding both the stock market crash of 1929, and the stock market crash of 1987,  there were major increases in stock prices.  In both time periods, prices dropped by a large percentage, before rising again.  This showed the market was unstable and worried people.  All these people worried about their stocks decided that maybe it was time to get rid of them.  In oth cases, there was mass amounts of “panic selling”.  They were selling their stocks in fear that they would lose value.  In a single day on October 29th, 1929, about 16.5 million stocks were traded.  On October 19th, 1987, over 604 million shares were traded. One key difference is that in 1929, the economy was already on its way down, but in 1987, the crash happened in a period of prosperity.  Also, two weeks after the crash of 1929, the prices were only to half of what they had been before, whereas 2 months after the crash of 1987, prices were already back up to their normal levels.

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The Crash Had the Ability to Create an Economic Death

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The Crash Had the Ability to Create an Economic Death

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Comparison: Role the Fed played in the Stock Market Crashes

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Comparison: Role the Fed played in the Stock Market Crashes

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During the the crash in 1929 many economist believe that the Federal Reserve policies led to the stock market crash. The Federal reserve had had not increased the money supply to provide money to banks after the stock market crash in 1929, and caused the banking-systems collapse. The stock market crash of 1987 had much less of a harsh impact because the Federal reserve moved rather quickly to ease the monetary policy and reassured banks, the policies in 1987 prevented declines in consumption and investment spending. The Federal reserve learned from their past mistakes in the second stock market collapse and reassured banks to help provide enough money to the public to prevent a crisis in the banking system. As compared to 1929 when the Fed failed to increase the money supply to banks after the stock market crash, and as the money supply continued to fall, this led to the recession that preceded the 1929 market crash. The 1987 stock market crash did not have a recession preceding it. The overall outlook comparing the two Stock market crashes is that,  in 1929 the Fed failed to properly fund banks, ultimately causing the recession, but the Federal reserve learned from past mistake and the 1987 stock market crash had relatively painless impact.

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Comparison: What Followed the Two Stock Market Crashes?

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Comparison: What Followed the Two Stock Market Crashes?

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The difference between the Crash of 1929 and the Crash of 1987 was that after the Crash of 87, the results weren’t all as bad as expected and no serious damage to the economy was made but with the Crash of 29 things only got worse afterwards. The stocks of 1929 continued to go in a downward spiral while the stocks of 1987 reached the same level as the year before and didn’t continue to plummet after that level was reached. The market after the Crash of 1929 didn’t fully recover to its peak for another 25 years but the Crash of 1987 only took two years to recover to its peak. In both crashes, people, of course, lost money but the amount of money lost between the crashes was a big difference (more money was lost in the Crash of 1929.) Although some may argue that the Crash of 1929 was a cause of the Great Depression, it definitely made the situation worse. As with the Crash of 1987, there was no depression or recession that followed. After both crashes were reforms implemented to prevent further stock market crashes as well as the Securities and Exchange Commission (1929) and Circuit Breakers who encouraged people to think about their decisions when it comes to stocks to reduce speculation especially when stock prices are dropping.

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Comparison: What Caused the Two Stock Market Crashes

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Comparison: What Caused the Two Stock Market Crashes

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The first stock market crash was caused by a number of issues that were associated with a poor method of regulating the stocks. Many people were buying on margin which resulted in a numerous amount of people who were incapable of paying back the loans. Along with buying on margin, stocks were overvalued and the extremely tight monetary policy of the federal reserve prior to the crash led to increasing interest rates and the decrease in the purchasing in stocks. Along with the numerous economic reasons of the first stock market crash, many psychological issues of the people in the United States aided to the result of the crash. When people saw others selling their stocks, many believed that they too should sell before anything got progressively worse. The second stock market crash was also caused by multiple economic and psychological issues within the nation. Many people were concerned that the inflation of the 1970s and the early 1980s would return. This caused many people to sell stock so that they could invest in bonds. Along with inflationary fears, many stocks were overvalued which was due to the rise in stock price and many speculators and investors attempting to get rich quick. Due to the extreme raise in stock price, they were bound to fall at some point and people would begin to lose money. Similarly to the first stock market crash of 1929, the Federal Reserve policies of 1987 led to the quick selling of stock by investors due to a fear of inflation. The introduction of programmed and computer trading led to system jamming due to a large amount of traffic within the trading servers extreme panic among investors.

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Stock prices were increasing dramatically, but fell about 10% after this peak, rising again by approximately 8% by mid-October.  People saw this instability and began to panic sell their stocks. On October 29th, 1929, over 16.5 million stocks were traded alone and records were shattered. Following the crash was the Great Depression. The depression was not caused completely by the crash but it was a main contributor. It took many years to reach the same prices as before. The Fed played a minor role and are believed to have been a reason for the crash itself.

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Compared to the stock market crash of 1929, the crash of 1987 was unexpected.  There had been nothing preceding the crash showing instability in the economy.  Stock prices has been rising in the early months of the year before dramatically dropping and then rising again.  On Black Monday (October 19th, 1987) prices dropped more than they did the entire century.  There was a one-day drop of 22.6%. Then over 604 million shares were traded and investors lost $500 billion in that day alone. This sounds serious but there was little damage to the county's economy. Just 2 months following the crash, the stock prices were back up to their normal levels. There was neither a depression nor a recession.