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Sat Mar 24, 2018, 07:12 AM

Did Trade Tariffs Cause the Great Depression?

http://fortune.com/2018/03/04/did-tariffs-cause-the-great-depression/

As Reynolds sums up, “market participants do not wait for a major law to pass” before retrenching their positions. In 1929, they were right to sell. Smoot-Hawley ultimately raised tariffs on tens of thousands of products, and trade policy analyst Bill Krist points out that by the end of 1934, global trade had tanked by 66% from 1929 levels.
The parallels to the current moment are distressing. The Trump tariffs are not in effect yet, and so far they are officially limited to steel and aluminum. But in coming days, stock traders will be acting on their beliefs about what the future will bring. There are signals, just as there were in 1929, that tariffs could expand from their modest start — U.S. trade partners have already said they will retaliate if tariffs go into effect, while President Trump posits that “trade wars are good.”
Even if we accept arguments like Reynolds’, tariffs were just one factor in the Depression, and most of the others aren’t substantial now. But history has provided us with a strong cautionary lesson about the real impact of tariffs, and the stock market is likely to heed it.

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Reply Did Trade Tariffs Cause the Great Depression? (Original post)
safeinOhio Mar 2018 OP
beachbum bob Mar 2018 #1
stevebreeze Mar 2018 #2
quartz007 Mar 2018 #3

Response to safeinOhio (Original post)

Sat Mar 24, 2018, 07:59 AM

1. trade wars never end well especially when we need THEIR stuff more than they need OUR stuff...

 

our system was corrupted decades ago when US manuf saw the advantage of tax laws and greater profits by shifting jobs and manufacturing overseas. American consumers supported this move as it gave them some savings on the stuff they buy. The tariff crap is just crap as trade is 2-way and when ignorant people believe we can "one-up" any country we do business with, they are badly mistaken. This is not 1950's where the US was the dominant market force on earth for almost all segments of manufacturing and agriculture.

While Smoot-Hawley effected the world economy a bit and the US and it did help to fuel a world wide depression, the root cause of the depression is multiple from the growing discontent in europe, the rise of the soviet union and the rise of nationalism and the after effects of WWI on the make up of the world powers.

Can we see a similar event? Maybe. The one thing we do know, we have ZERO stability in Washington DC because of trump and his minions. The markets DESIRE stability and they aint going to get it while trump and conservatives remain in power.

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Response to safeinOhio (Original post)

Sat Mar 24, 2018, 09:03 PM

2. Truth is most of the current "free" trade laws are not as much aobut teriffs

as they are about protecting intellectual property.
That being said the economy was well in the shitter by '34.

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Response to safeinOhio (Original post)

Thu Mar 29, 2018, 04:46 PM

3. No! It was the ugly big leverage for

 

stock purchases. Before the 1929 crash, $1 could buy $10 worth of stocks. It is called margin buying. That works great when stocks are going up.

However a slight dip (such as 5%) makes your equity cut in half. For example:

You buy $1000 worth of stocks with $100 down.
Your risk is $100. Broker's risk is $900.
If your stock has a 5% correction, your holdings
are now worth $950. Since broker loaned you $900,
your equity is now $50 instead of the $100 down payment.

The broker does not wish to risk holding a stock worth $950 with only $50 equity from buyer. So he issues a margin callto you meaning you better come up immediately with $45in cash to bring your equity back up to 10%. If you don't broker is forced to sell all those
shares immediately so that he can recover his $900.

When multiple margin calls went out, the speculators were
forced to sell and that caused a cascading bear market.
When stocks become worth lot less, the corporations can borrow lot less by issuing new shares. And that can start a depression.

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