POLS 1090 Lecture Notes - Lecture 2: Liquidity Crisis, Stock Market, Market Clearing
26 Jan 2016
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Major uncertainty: whether the c" product can be sold for sufficient profit (m. In 1930"s (great depression) the business confidence was deeply depressed which resulted to catastrophic consequences in the capitalist society. 1929 - stock market crash on wall st ny lead to a general crisis in the capitalist economy. There was a binge of buying on the stock market which lead to a massive increase in stock. As stock prices rise, investors placed a higher value on the assets of company. Stock market have a high speculative component (prediction - value may go up or down) In 1929 interest rates were allowed to rise by central monetary authorities. The increase in share prices lead to an increase in loans (people would borrow money to buy shares) which started the shares being collateral to the loans. Margin calls - loans were called into the banks as stock market declined. Liquidity crisis - banks are not able to loan money.
