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Olney “The Role of Credit in the Consumption Collapse of 1930”

Olney “The Role of Credit in the Consumption Collapse of 1930”. Vaughan / Economics 639. Overview from Abstract. Consumer spending collapsed in 1930, turning a minor recession into the Great Depression.

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Olney “The Role of Credit in the Consumption Collapse of 1930”

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  1. Olney“The Role of Credit in the Consumption Collapse of 1930” Vaughan / Economics 639

  2. Overviewfrom Abstract Consumer spending collapsed in 1930, turning a minor recession into the Great Depression. • Households were shouldering an unprecedented burden of installment debt. Down payments were large. Contracts were short. Equity in durable goods was, therefore, acquired quickly. • Missed installment payments triggered repossession, reducing consumer wealth …because households lost all acquired equity. • Cutting consumption was the only viable strategy …for avoiding default. • Institutional changes lowered the cost of default by 1938. When recession began again, indebted households chose to default rather than reduce consumption.”

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