The Federal Reserve began tightening credit throughout 1929, raising interest rates from 5% to 6%. This action was intended to cool down what they perceived as dangerous speculation and signaled that the era of easy money was ending, suggesting that the bubble was beginning to deflate.
This video explains how sophisticated investors and financial institutions anticipated and profited from the 1929 stock market crash, while the general public remained oblivious to the warning signs. It details the various indicators that were present, such as Federal Reserve actions, international capital movements, margin calls, and unusual trading patterns, which the "smart money" recognized as precursors to disaster.
Leverage played a crucial role in the market's instability by creating a fragile structure. Nearly 40% of stock purchases in 1929 were made with borrowed money. Investment trusts also borrowed heavily to buy stocks, leading to a "leverage upon leverage upon leverage" situation, essentially a pyramid of debt supporting inflated prices. When prices started to fall, this high level of debt meant that selling became unstoppable, as forced liquidations fed on themselves until the entire structure collapsed.
