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

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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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overview from abstract
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.”