DESCENT INTO THE DEPTHS (1930):

Rebound from the Great Depression Crash of '29

FUTURECASTS online magazine
www.futurecasts.com
Vol. 3, No. 3, 3/1/01.

   Homepage

Summaries of Great Depression Controversies and Facts

The Great Deception:

Great Depression Chronologies

I.
The Crash of  '29  

III.
Collapse of agriculture (1930)

IV.
Debate begins. (1931)

V.
Collapse of international finance (1931)

VI.
Collapse of WW I financial obligations (1932)

VII.
Collapse of governments (1932-1933)

(The vast majority of the following was taken from articles published in contemporary issues of the N.Y. Times.)

 Rebound:

 

 

 

?

   There had been much talk about eliminating short selling. The NYSE now requested lists of all holders of borrowed stock (short sellers). The rush to cover to stay off the list and to realize profits assisted in ending the decline.
 ?
  The discount rate was reduced again, to 4 1/2%. Congress rushed a tax cut. Rockefeller ordered 1 million shares of Standard Oil at 50. An order for 50,000 shares of U.S. Steel at 150 "pegged" that speculative leader. Its drop from 261 3/4 to 165 had been the bellwether of the crash.
 ?
  The gyrations quieted. The stock market rallied in quiet trading for the rest of November.
 ?

Secured bank loans and borrowing on life insurance policies had each risen about $2 billion. 

 

 

Bank deposits had been declining all year, for the first time in two decades. Banks reported 1/2 million fewer depositors.

 

 

 

 

 

 

?

   By December 1, 1929, broker's loans had declined by over 50% to just over $4 billion. But unsecured bank loans were up $2 billion to almost $10 billion. Secured loans by banks were about $8 billion. There was $2 to $3 billion tied up in installment buying. Borrowing on life insurance policies rose over $2 billion to a new total of almost $10 billion. Bank deposits had been declining all year, for the first time in two decades. Banks reported 1/2 million fewer depositors. Both investors and consumers were living off capital, extending themselves further into available supplies of credit.

  There was certainly no evidence that an increase in savings had played any role in the ending of the 1920s period of prosperity. Here, too, facts perversely refuse to conform to Keynesian theory.

  Exports, imports, railroad car loadings, textiles, auto and steel production, commodity prices, all took big drops in November and went even lower in December. However, employment, wages, and retail sales remained good, and Christmas buying was encouraging.
 ?
  The November rally continued into December, recouped 1/3 of the stock market loss, only to be hit by renewed unloading of distress stocks by banks and brokers and a large volume of short selling which drove prices down yet again.
 ?
  Copper, autos, textiles and agricultural commodities were now suffering from accumulated inventories. The financial slump now accelerated the business decline. Steel production nose dived during the holiday season.
 ?
  The Wall Street prop had been knocked out from under world finances, spreading the effects around the world. Germany and Austria suffered large market declines and increases in unemployment. Paris and London markets were also lower, but the French economy would not be seriously affected until the second quarter of 1930.
 ?

 Happy New Year:

 

 

 

 

?

  The new year, 1930, dawned bright, cheery and confident. A parade of business, financial, labor, academic and government leaders made page one news with reviews of promising business conditions and future growth. December retail sales reports were quite good. The stock market had edged steadily upwards during the last half of December despite year end cash selling and the continued unloading of the distress stock held by banks and brokers.
 ?
  Wall Street was openly bullish. Broker's loans moved impressively upwards as hope continued to surge through the breasts of bull speculators. The Big Board actually gained $1.1 billion in December, to a new total value of $64.7 billion. Broker's loans were down to about 6.16% of this total.
 ?

 Auto sales did not actually decline below the good levels of 1928 until the end of May, 1930.

 

 

?

   The statistics for the last quarter of 1929 began to flow in. Except for December, 1927, exports for December reached a six year low. In the final quarter of 1929, they were 10% below 1928 levels. Cotton exports for 1929 were the lowest in 5 years - almost 15% below 1928 levels. Wheat exports practically terminated with the high prices of the summer of 1929. At year's end, 221 million bushels of Canadian and U.S. wheat were in storage. Commodity prices were sharply lower. Wheat fell from a high of $1.62 in July to $1.14 in October. Corn, oats, rye and cotton all fell sharply.
 ?
  Auto production, which hit a high of 621,910 units in April fell steadily thereafter to just 119,950 in December - the smallest monthly total since February, 1922. However, auto sales did not actually decline below the good levels of 1928 until the end of May, 1930. Some of the problem was in declining auto exports.
 ?
  Many rosy half year earnings projections had been cut in half by the economic decline in the last quarter of 1929. Dividends, at $4.46 billion, were nevertheless about 20% above 1928 levels, and short term "call" money was available at 4%, which was the lowest level since February, 1928.
 ?
  Business inventories were reportedly small and retail trade was holding up well. But business buying plans were cautious, and major cities like St. Louis and Chicago reported the cutting back of building plans and the laying off of workers. Manufacturing unemployment was up 500,000 since September, 1929.
 ?
  Depressed conditions continued unabated in Germany, Central Europe and England. Banks and brokers remained heavily burdened with distress stock. A large, confident short interest, well healed with recent profits, was reportedly operating in the stock market.

 The spring, 1930, revival:

  There were great expectations of a quick business revival in the spring of 1930. Credit was ample and available at low rates. Bank rates had been cut sharply by the Federal Reserve Bank and all the major European national banks. Private interest rates had been cut even faster and sharper as people with money found it increasingly difficult to profitably employ it. Not only were business risks rising, the profit inducement to borrow was clearly declining, making the availability of money at sharply declining interest rates increasingly irrelevant.
 ?

 Governments responded to the crisis with substantial tax cuts and public works projects.

   Auto manufacturers increased steel orders, as auto inventories were at last worked down. Railroads, responding to a plea from Pres. Hoover, accelerated steel rail buying and other planned maintenance and capital projects. Many other public utilities and major industries responded similarly.
 ?
  Federal taxes were cut substantially and public works projects were accelerated. Steel production rebounded to 69% of capacity and continued climbing towards its usual March-April peak.
 ?
  Steel prices had declined 4% - to the lowest levels since July, 1922. They had been as high as $60.60 per ton in April, 1923, but declined thereafter. The steel industry had passed on productivity gains to steel costumers, and had depended on increased volume for increased profits. During the production surge of the first half of 1929, steel prices were $51.25 per ton. By March, 1930, they would fall to $47.75, despite the substantial first quarter pickup in steel orders.

  There is certainly no evidence here to support the left-wing myth that steel prices were "sticky" in a "downwards" direction. In just seven months after the Crash, they declined to levels not previously reached in seven years.

Exports and imports continued their inexorable decline. Reports that Russia would reenter the market as a substantial wheat exporter hurried agricultural commodity prices lower.

 

Unemployment was reaching worrying levels. Where on average it only took mere weeks for the unemployed to find new work during 1929, it now took several months.

 

 

Railroad car loadings remained at the lowest levels since 1922.

 

The bankers group, which had rallied to support the market by making large purchases of blue chip stock during the Crash, reported that they had successfully unloaded their holdings - at a profit.

 

Farm Board price supports drove wheat prices up to levels that eliminated exports and induced the planting of huge crops.

 

The NYSE recouped all but about 12% of its losses, some of which was made up by gains in the bond markets.

  Bad news continued to come in, however. Exports and imports continued their inexorable decline. Reports that Russia would reenter the market as a substantial wheat exporter hurried agricultural commodity prices lower. Wheat tumbled back to $1.18 from its modest recovery levels. Cotton declined to 16 1/2 cents per pound. Corn, oats and rye prices all tumbled 10%-to-20% in January. Railroad car loadings remained at the lowest levels since 1922. Unemployment was reaching worrying levels. Where on average it only took mere weeks for the unemployed to find new work during 1929, it now took several months.
 ?
   There was depression practically throughout all the advanced economic nations except for France and the Scandinavian states.
 ?
  But the traditional spring trade revival would put everything straight. Hopeful expectations plus what appeared to be a normal increase in business in anticipation of a healthy spring trade pushed Big Board stocks up more than $4 billion in January, 1930, to a new total of $69 billion.
 ?
  The constant decline in commodity prices made everyone nervous. However, the constantly rising steel production figures remained the stock market bellwether. While well below the record 1929 levels, steel production rose substantially and compared well with all years prior to 1929. The bankers group - which had rallied to support the market by making large purchases of blue chip stock during the darkest moments of the Great Depression Crash - reported that they had successfully unloaded their holdings by the end of February - at a profit.
 ?
  Reports of large wheat carryovers and Russian wheat exports were now joined by wholly unexpected adverse news. Bad crops elsewhere around the world would be offset by a bumper wheat crop in Europe that might fulfill European requirements for the year. On February 25, wheat prices dove down below $1 per bushel. Export orders poured in at these low prices. Then, the Farm Board stepped in to buy 6 million bushels at $1.18 to $1.25 per bushel. Export orders immediately dropped by 66%.
 ?
  Worse, still, these high prices affected farmers' plans. Big 1930 crops were expected.
 ?
  However, primary interest rates continued declining all around the world. The Federal Reserve's discount rate was lowered to 3 1/2% in March. Textiles declined sharply, but retail trade otherwise remained fairly good. Banks reported an end to the decline in bank savings. Dividend payments, from 1929 earnings, were at record levels. Competitive pressures caused a boom in advertising, and farm implement purchases were running above 1929 levels.
 ?
  The higher wheat prices, a rise in steel production to about 80% of capacity, revived auto production and sales, and the general revival of domestic economic activity, pushed stock market prices higher. April auto production of 467,000 units was better than any April save April, 1929 - but the revival in auto production would probably have been about 40,000 units higher that month but for the collapse of its export market.
 ?
  Total NYSE stocks reached just under $80 billion by April 10, 1930, making up about 73% of its losses since its September, 19, 1929 highs. The Big Board had surged about $30 billion in five months, a gain of about 65%. Its loss from its September, 19, 1929 highs, was just about 12%. Bond prices were running above 1929 levels, and bond financing was now running at 10 times the rate of stock flotation - reversing the tendency in 1929.
 ?
  The securities markets had staged a nearly complete recovery by any measure, and, despite weak spots, the domestic economy was doing well. But brokers loans were rising sharply, indicating the speculative nature of much of the recovery.

 U.S. exports and imports were now 23% below 1929 levels, about half consisting in price cuts and half in volume cuts, and were now below 1928 levels as well.

   However, the revival was fatally flawed. U.S. foreign trade was now running 23% below 1929 levels - about half consisting in price cuts and half in volume cuts. It was now running below 1928 levels as well. First quarter earnings were disappointing, especially when compared with the earnings of the booming first quarter of 1929.
 ?
  In spite of heavy Farm Board purchases, the price index for all commodities had already plummeted to the lowest levels since 1916. The Farm Board now controlled about 1/3rd of the total visible domestic wheat supply.
 ?
  Along with the sharp drop in agricultural exports, there was a 46% drop in auto exports for the first quarter of 1930. Exports were a very important factor for the auto industry. They had accounted for about 20% of total sales. Railroad car loadings remained at the lowest levels since 1922 - obviously heavily impacted by the downturns in agriculture and auto exports.
 ?

In all previous slumps, price declines had stimulated exports to assist in the economic recovery. 

 

Bank failures were substantially higher during the first quarter, but as yet no higher than in previous economic declines during the 1920s.

   Revival hopes were constantly frustrated by the substantial reductions in exports. It was noted by a columnist that, in all previous economic slumps, imports fell but exports would respond to lower prices by rising. This was true for all the advanced economic nations. Now, however, exports were dropping sharply along with imports, in all the depressed economies around the world. Reports of increasing unemployment and communist rallies came in from many European nations.
 ?
  Business failures were up sharply - the most since 1922. Failures in men's wear rose spectacularly - as usual during depressions. Textile inventories rose 25% for the quarter despite a 12% reduction in production. Construction was depressed. New York cement mills were operating at only half of capacity. By the end of April, employment had dropped 8.5% since the Crash.
 ?
  There were 124 bank failures - mostly small rural banks - with $51.5 million in liabilities, in the first quarter of 1930. Real estate losses were heavier than the losses in the stock markets, and second mortgages took a beating. Small rural banks with large holdings of land mortgages were badly hurt. However, the figures were as yet no worse than for the previous economic downturns in 1924, 1925, and 1927, from which recovery had always quickly followed.
 ?

 By any measure, the stock market remained determinedly over optimistic.

   This was the "spring rally" of 1930. The stock market remained determinedly over optimistic - bouncing back vigorously after each selling climax - rising in expectation of each possible trade turning point - and falling back only when disillusionment became inevitable.

Please return to our  Homepage and e-mail your name and comments.
Copyright 2001 Daniel Blatt