If prosperity runs for a long time and stock market prices continue to advance over a period of years, the public becomes overconfident moves in the markets and business reach the gambling stage. Some of the other causes are undigested securities, both stocks and bonds, or low prices of commodities and foreign exchange, over trading both in business and the stock market, bank failures, exports and imports, price of silver, copper, iron and other basic commodities. The principal and most important cause of all panics is high money rates, which are due to overextended credit and over speculation. Many factors contribute to the cause of panics. Many of these veteran traders made the final mistake, which was worse than any of the first mistakes, of getting bullish at the end of the 1929 Bull Campaign and buying stocks, with the result that they suffered heavy losses in the panic which followed. Certain stocks continued to advance into 1929. They continued to fight the market at different times during the bull campaign, thinking that every time the market advanced to a new high level, it would be final top. Coolidge was elected, and advanced in 1925, traders considered that according to the old rule the bull campaign was over and went short, with the result that they took heavy losses. After stocks advanced from 1921 to 1923, declined in 1924 and started up again after Mr. This was the wrong idea which cost many traders heavy losses. Many people who had never studied the records of stock markets further back than 1901 to 1921-and some of them never reviewed them that far back-had the idea, from what other people wrote or said, that a bull market never lasted more than two years.
This article was headed “Goodbye, Business Cycle.” I quote an article which appeared on November 28, 1927, in one of our leading newspapers. The Federal Reserve Bank was in existence at that time, but that did not prevent Liberty Bonds from declining to around 85 and stocks from selling to the lowest levels on averages since 1914 before the World War began. The decline of 19 following the great bull campaign of 1919 was due to “frozen loans” and tight money. At the same time these people were talking about the millennium in financial affairs and the stock market, but they seemed to have forgotten what happened in 19.
Many economists, bankers, large financial operators, and businessmen said that the day had passed when there would be panics caused by money conditions such as had happened in 1907 and previous years. During 1927, 1928, and the first half of 1929, there was much talk of a new era in the stock market and the great value of the Federal Reserve Bank in preventing panics.
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