The 1929 stock market crash and its subsequent downward spiral were the worst in history and the start of the Great Depression. The Dow Jones Industrial Average eventually lost almost 90% of its peak value. When US leaders reacted to that crisis, they did exactly the opposite of what they should have done. They should have flooded the system with easy money and guaranteed the deposits of banks, but instead they let banks fail. They should have provided a stimulus, but instead they tightened credit and increased interest rates. The result of these policies was a liquidity crunch that seized up the economy, as companies found themselves unable to finance continued operations. Modern-day economists and federal regulators are biased by this history and viewpoint; as a result, they view every stock market crash or down cycle as having the potential to cause the next Great Depression.
American debt and banking failures were among the causes of the prolonged slump after the 1929 crash. Accumulated debt by businesses and households, due to the excesses of the 1920s cheap-money policies and leveraging to take advantage of stock market opportunities, took some time to untangle. The deleveraging process lasted many years, as falling prices and increases in unemployment made the repayment of debt more difficult and extended the process. “In particular, it set into motion a vicious spiral within which everybody’s efforts to reduce that load for a time only availed to increase it.”
After the 1929 stock market crash, most business forecasts expected a recession and a general downturn of the economy in 1930. What they saw that year was a tale of two halves (but it would turn out to be “the haves and the have-nots”). The first half of 1930 saw a stock market rally, as the Dow improved from a low of 248 at the beginning of the year to a high of 294 in April. The second half of the year saw the Dow fall steadily, as liquidations occurred in multiple rounds and the contraction quickened; “…people felt that the ground under their feet was giving way.” The Dow ended at 170 by the end of the year.
The Dow bottomed out in July 1932 at 41, almost 90% below its peak of 380 in 1929. The stock market rallied up to 76 in September and then fell again back down to 60 by the end of the 1932 election year. Then, New York Governor Franklin Roosevelt defeated President Hoover by a landslide in the November election, and the country eagerly awaited his inauguration. However, at that time, the presidential inauguration wasn’t held until March of the year following an election. Because of the dire economic consequences and the time criticality of the situation, Congress enacted the 20th Amendment to the Constitution (ratified in 1933), which moved up presidential inaugurations from March 4 to January 20. This was also known as the “Lame Duck” amendment, but it didn’t become effective until President Roosevelt’s second term.
 The Great Crash 1929, by John Kenneth Galbraith, 1954, Houghton Mifflin Company, New York, New York, pages 183-186
 Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process, by Joseph A. Schumpeter, 1939, McGraw-Hill, New York, New York, page 909
 Ibid, page 911
 The American President: A Complete History, by Kathryn Moore, 2007, Fall River Press, New York, New York, page 371