The Second Leg of the Great Depression Was Caused by European Defaults
This weekend's article comes from a website I like to frequent from time-to-time called ZeroHedge.com, who benefited from a guest poster at Washingtonsblog.com. In the article below the author points out that during the Great Depression, the second leg of the downturn, which took the market to its lowest levels was actually caused by European defaults, which didn't surface until the market had made a "V" shaped rebound of 60% off of its original lows (the initial sell-off). This article I found to be truly fascinating.
Many Americans know that the Great Depression was started by the bursting of the giant Wall Street bubble of the 1920's (fueled by the use of bank deposits on speculative gambling, which is why Glass-Steagall was passed) , which in turn caused a run on American banks.
But most Americans don't know that the second leg of the Depression was caused by European defaults.
As Yves Smith reminds us:
Recall that the Great Depression nadir was the sovereign debt default phase.
The second leg down of the Depression was larger than the first, as shown by this chart of the Dow:
Click Here to See the Chart and Rest of the Story.