The development of industry in the United States changed society the agrarian United States became an industrialist. The consumeristic lifestyle becomes a new pattern. Initially, production was adjusted to the number of requests, but over time the entrepreneurs produced more goods. So to attract buyers, producers provide credit to buyers.
On "the roaring twenties" the economy of the United States developed abnormally rapidly, which eventually triggered speculation in the stock market. The majority of people invest in stocks with a "buying on margin" credit system. So the speculators by owning 10% they can own shares, the rest speculators borrow from brokers (brokers) or banks. Speculative demand for stocks is what plays a major role in increasing prices so bonds rise.
Although not a major factor in depression, this activity makes depression more intense. The billions of dollars that should have been used to develop production and pay wages were diverted to the stock market. The demand for bonds increases and then encourages dishonest practices. When stock prices fall, the demand for money from investors increases. Whereas banks cannot fulfill all these requests, eventually there is credit pressure.
Capitalists regulate financial turmoil by regulating the supply of money at irrational levels. the collapse of the financial sector and the relatively high debt bondage that changed the behavior of the private sector and triggered their efforts to improve their financial balance sheets. America cannot do anything because historically they owed the FED.
After World War I, the classical gold standard had been destroyed and was impossible to recover, because too much paper money had been issued by the US and European countries. In theory, the world went to a 'gold exchange standard,' where both dollars and pounds, in addition to gold, could serve as reserves. Also, individual savers were only able to redeem paper money for gold if they were converting a lot of money. In reality, dollars had begun to replace gold as the foundation of the system. The rise of paper money became the core driver of the bubbles of the Roaring 20s.
Yes, trading stocks on margin loans did exacerbate financial instability, but isn't that how it always works in the modern world? The loans issued to the public to buy stocks (or to buy products) were a financial asset, and was 'new wealth' created out of thin air, as long as the (high) estimation of the borrower's creditworthiness held. The bank and the system had every incentive to make sure this was the case, and that the stock market bubble would continue. This is just a different type of asset from today's corporate bonds issued to buy back stocks and enrich the executives. There's no basic difference. (Those same corporate bonds, BTW, have just been found to require a Fed bailout.)
Ultimately, the nature of the system is always that the elites issue assets and use state power to prop up their value, in order to benefit from blowing a bubble. When the bubble must burst, it's the public who will bear the brunt of economic hardship.
