FUTURECASTS online magazine
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Vol. 3, No. 4, 4/1/01.
Summaries of Great Depression Controversies and Facts
Great Depression Chronologies
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VII. |
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The aborted spring business revival: |
By the beginning of April, 1930, the
rise in stock prices had once again left dividend yields, by
themselves, well below attractive investment levels. The limited
revival of railroad car loadings indicated the limits of the spring economic revival and caused a 33% reduction in
railroad earnings. ? |
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Accelerated maintenance work and purchases
by the railroads and other major industrial corporations - undertaken
pursuant to a plea from Pres. Hoover - had pushed steel production
momentarily as high as 82% in February, but by April the
railroads were forced to make substantial reductions in these
plans. However, the successful liquidation of excess auto inventories and the continuation
of good sales through April, 1930, resulted in a pickup in auto production
that pushed steel production
back up to 80% of capacity. There were now no observable merchandise
inventory problems. ? After hitting its recovery high on April 10, 1930, the market was buffeted by a continuous flow of disappointing first quarter earnings reports that looked especially poor when compared with the booming first quarter of 1929. Railroad car loadings broke lower. The market slipped lower. However, it took something spectacular to break the nearly unreasoning optimism of the stock markets. |
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Copper had been pegged at 18 cents per
pound by an international cartel. It had been as high as 24 cents
per pound in April, 1929. However, overwhelming stockpiles and
sales from secondary sources at lower prices broke the dam. The
price dropped to 12 1/2 cents in the beginning of May. ? |
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When steel production also slipped - falling just below 80% of
capacity - the stock market broke
wide open. Selling of agricultural futures then
broke the dam erected by the Farm Board, and grain prices sunk like stones,
taking the stock market with them. The Big Board quickly lost 75% of the ground gained since
the beginning of the year. Wheat prices tumbled
below $1 per bushel. This breached the "dollar line," which had
become a traditional bear market signal. Steel prices dropped to the lowest level
since 1922 - down about 7% - about in line with the general
decline in wholesale prices. (There is still no evidence here to support the
left wing myth that steel prices were "sticky in a downwards direction.") ? "The New Era isn't here yet," commented Mr. Simmons, Pres. of the NYSE. ? The exodus of speculative enthusiasm from the stock market was accompanied by a precipitous decline in broker's loans. Improved spring retail trade and the reduction of the Federal Reserve Bank discount rate to 3% at the beginning of May could not overcome the plethora of depressing factors. Bull optimists could now point to nothing closer than the fall trade period as a driving force for future recovery. (In the days before air conditioning, economic slowdowns were normal for the summer months.) |
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The burden of WW I debts and international
commercial debts was now being vastly increased by the sharp
decline in international trade. The financial pressure to curb
imports grew accordingly. New tariffs began reaching political
fruition. International trade was to be hurried on its declining
cycle. ? |
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A new Canadian tariff was estimated
as costing the U.S. $225 million in lost export business, and
France threatened retaliatory tariffs if the U.S. passed the
much-debated Smoot-Hawley Tariff bill. After all, the tariffs
of the U.S. - the world's principal creditor nation - were already
the second highest in the world - trailing only those of Spain. ? The issue was still in doubt - especially in the Senate and with respect to whether Pres. Hoover would sign the bill. In one of the most glorious moments for the profession, 1,028 economists put their names on a petition to Hoover in opposition to the tariff bill. The petition was published in the N.Y. Times on May 4. However, the usual business and labor constituents were seeking protection from foreign competition, and many in Congress were anxious to oblige. ? A commentator pointed out that the concurrent decline of both exports and imports in all the economically advanced nations of the world was evidence of the internationally interdependent nature of this depression. Depressions occurring in a single nation - causing sharply lower domestic prices - would increase exports while reducing imports, thus aiding recovery. ? |
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Gold flows grew in importance. Lowered
prices and decreased trade put heavier stress on financial resources
heavily encumbered not just with ordinary trade and investment
debts but also with WW I financial obligations. France and the
U.S. gained gold and hard currency reserves. They were "winning"
the trade war - but losing the world. ? England, Germany and the Central European nations were heavy losers. The French economy started to slip in May. ? Silver, a vital monetary metal, crashed in May, when the Chinese Reserve Bank was forced to cease purchases. This cut deeply into Indian and Chinese financial strength as well as that of several Latin American nations that used silver to denominate their currencies, and drastically reduced their imports. The English and U.S. textile industries were especially hard hit, as was the price of cotton and other fibers. Many other industries suffered lesser but still significant losses. ? The "confidence game" worked no more. Government reassurances of recovery "in 60 to 90 days" fell on deaf ears. Many financial columnists still saw the Crash as a market "readjustment" unaccompanied by the heavy inventories of manufactured products that were a feature of the 1921 depression. Thus, it was reasoned, the market decline would have only a temporary effect on trade. They tried to predict the length of the Depression by comparison with previous depressions, without any attempt to analyze the many differences. Like incompetent generals, they were only prepared to fight the last war all over again. ? |
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Second quarter earnings reports were
now nervously awaited. They would compare far more unfavorably
with 1929 and 1928 than did those of the first quarter. All hoped
that the present decline was "discounting" this bad
news. ? Auto sales dropped below 1928 levels for the first time by the end of May. Production would be stopped by most producers in July for an early changeover to new models. Residential construction was cut almost in half. ? By the end of May, steel production had slipped to 74% of capacity as auto and railroad orders tapered off. Railroad car loadings for the first five months were down only 8% and 9% respectively from 1928 and 1929 levels, but this was the lowest level since 1922. Railroad net income continued to run at just 1/3 the 1929 level. (The railroad car loads indicator was being increasingly impacted by pipeline and truck competition.) ? Unemployment rose sharply in May - reaching the worst levels in 11 years. Sharp wage cuts were reported, especially for nonunion workers. Retail trade for June fell 10% under 1929 figures with many sharp cuts in prices. The bankruptcy rate in June surged about 15% above the rate in May. ? Commodity prices were now sinking like stones - at something more than 2 1/4% per month - with a big decline in April. World money rates had been cut in half since October, 1929, and private lending rates had declined even faster. ? |
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On June 9, the stock market suffered
its sharpest loss of the year as the decline resumed. The next
day, short covering and bargain hunters pushed a market recovery
of practically all the previous day's loss. But U.S. Steel production
declined to 71% and its unfilled orders report showed
a dramatic decline. On June 11 an even bigger market drop wasn't
stemmed until financial leaders stepped in with big orders for
key stocks. ? This typical whipsawing was killing the margin speculators - both long and short - and was chasing many out of the market. The investment trusts were reportedly now heavily committed to the stock market. Steel dropped to 69% of capacity. ? The domestic bond market remained fairly firm. Almost $100 million in German 5 1/2% Young Plan bonds sold briskly at a good premium. Young Plan bonds floated in a well advertised effort to "cure" Germany's reparations induced financial problems totaled $300 million. ? |
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The Smoot-Hawley Tariff passed the Senate
on a narrow 44-to-42 vote on June 13, supported by almost all the
Republicans. Europe angrily canceled large
orders for U.S. copper and non-ferrous metals (lead, zinc). All
commodity prices began to decline again. A soon to be familiar
song was heard. ? Rye lowest in 30 years, oats lowest since 1922, exports and imports smallest since 1924. All business indices dropping. No hope for early recovery. ? Crash on June 16 as the House passed the Smoot-Hawley Tariff, again supported by almost all the Republicans. Pres. Hoover wasted no time. Ignoring the pleas from a vast host of the nation's economists, he signed the Smoot-Hawley Tariff on June 17, 1930. Expectations that political leaders would eventually prove capable of handling the international crisis were now shattered by clear proof that they could not even avoid making matters much worse. ? |
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Industrial and foreign government bonds began to slip. |
The decline since April 10 had now reached
the stage where heavily margined bull speculators would be driven
out on each decline. In addition, investors - many of whom were
the "bargain hunters" of November 14, 1929, and January, 1930 - began a discouraged liquidation of holdings. Many margin
accounts were being completely closed out. Industrial bonds and
many foreign government bonds began to slip. Spain and New Zealand
increased tariffs on U.S. goods. ? Each crash was followed by a sharp partial recovery as shorts covered and new "bargain hunters" were lured in. The rediscount rate was lowered to 2 1/2% - the lowest level in history - recognizing an already existing fact as there was little demand for Federal Reserve funds. Steel dropped to 65% of capacity, railroad car loadings continued to drop, and other bad news kept coming in. Each rally petered out, followed by a slipping movement, culminating in a sharp selling climax. ? Reassuring statements came regularly from Washington and were just as regularly ignored. The stock market now seemed to take perverse pleasure in suffering its worst declines immediately after reports of reassurance by important government officials. The whipsawing continued to drive people out of the market, reducing average trading volumes. ? Trading became dull. The "floating supply" of various stocks in brokers' hands declined, indicating that there was substantial investment buying as purchasers bought for cash and took the certificates home with them. It was becoming increasingly difficult for the shorts to borrow stock. But the Crash had again subsided as all now looked hopefully towards the fall recovery. ? However, commodity prices had collapsed. Cotton dropped 3 cents (18%) in one week. Predictions of bumper crops added to world wide agricultural miseries. The world's wheat surplus was reported at almost 600 million bushels (almost 1/7th of total world average production). Farm Board buying was now conspicuous by its absence. Wheat dropped 19 cents in June, hitting 86 cents by the beginning of July. Cotton hit 13.04 cents with a 6 million bale carryover, 1 million of which was in the hands of the Farm Board. The carryover equaled just under half of average consumption for a full year. Beef prices plummeted. ? French trade now suffered a sharp decline, and the German stock market suffered yet another crash. ? |
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There was still little merchandise inventory accumulation.
The accumulation had occurred
at the raw materials and productive capacity levels as all sorts
of commodities accumulated in spite of significant cuts in production.
The impact of a decade of protectionist trade war was manifest
in huge surplus commodity carryovers and vast and wasteful overcapacity
in protected economic spheres - especially in agriculture and
in some mining lines like copper. ? The U.S. Department of Agriculture reported that increased world wheat acreage and decreased consumption would leave wheat in an oversupply condition for at least seven years. ? Steel production declined to - but then remained steady for several weeks at - about 56% of capacity. ? Foreign trade accelerated its inexorable month-by-month decline. After the well promoted Young Plan loan to Germany, no other foreign loans were accepted by a now wary Wall Street. Loans to Germany in 1930 equaled only about 25% of the loans extended in 1928. ? Values on the Big Board slipped by more than $12 billion in the second quarter, to a new total of just under $64 billion (still well above the $48 billion level reached on November 13, 1929). The continued weakness in commodity prices was a constantly unnerving factor for the stock market. European markets followed Wall Street down. |
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Bad earnings reports had, in fact, been
discounted. The earnings of the autos and steel had held up well,
thanks to the spring revival. Optimistic bull speculators began
to discount the fall trade revival. ? |
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Bumper wheat and cotton crops and large carryovers still leaned heavily on any possible price recovery. |
Then, drought hit the corn crop. Corn
was the only major crop not suffering from surplus production.
It would be the smallest crop since 1901. By August 1, 1930,
it was selling at higher prices than wheat. ? As wheat prices dropped, wheat had again become competitive in world markets. Exports quickly surged, running 75% above 1929 levels. Moreover, with the new high price for corn, substantial amounts of wheat began to be used for animal feed. Wheat prices of 83 cents per bushel in Chicago meant 60 cents at the Kansas farmer's market. ? By August 5, corn hit $1.01, dragging other grains up with it. Corn prices had risen 30 cents since July 8, wheat was up 13 cents in four days to 97 1/2 cents, and oats and rye were sharply higher also. Ever willing to be optimistic, the stock market surged upwards. ? However, the fibers did not share in the commodity price rise, and steel prices dropped yet again - another $1 to $3 per ton. ? By the end of July, the NYSE had recovered 22% of its spring loss. Steel production was steady at 56% throughout the month. ? The drought broke in the second week in August. All grain prices broke sharply with the news of the heavy rains. The higher prices had cut off exports and much domestic buying, and attracted selling of futures and surplus supplies retained by farmers. It also attracted additional selling from Russia. Bumper wheat and cotton crops and large carryovers still leaned heavily on any possible price recovery. Steel production slipped to 54%. |
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By the end of August, most grain prices
were again hitting new Depression lows. The financial after effects
of WW I and the trade war continued to strangle world trade. ? |
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Cotton declined below 12 cents, copper
below 11 cents. Even with the periodic surges in commodity exports
when prices fell, foreign trade was now running a staggering
30% below 1929 levels - 14% of which was due to
lower prices. Steel production bottomed out at 52% of
capacity for this period and then rebounded back over 60%.
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Yields on the major industrial stocks
remained modest. In spite of eleven months of stock market decline,
and the high earnings from 1929 and the spring, 1930 business
revival, dividend yields were only 4% to 5% on
industrial common stocks at their end of August, 1930 price levels. ? Obviously, investors were not yet pessimistic. They were still counting on imminent economic recovery and future stock price increases for adequate returns. After all, they could still earn 4% interest and more for savings deposits. Considering the accelerating flow of ever worsening trade and financial news which constantly pummeled confidence, the Great Depression - even at this late date - certainly could not be blamed on Wall Street pessimism or panic. ? Yet this was exactly what columnists and commentators of all sorts continued to do. Ignoring the growing cry of alarm from professional economists, they constantly refused to recognize the terrible financial burdens that political blunders had heaped upon the economic system of the world. If you just ignore it, perhaps it will all go away like some bad dream. |
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On September 15, 1930, the N.Y. Times editorialized:
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Many strains became evident throughout the world
as the Great Depression ground downwards. ? The fall of rubber prices to less than 8 cents per pound wiped out approximately $600 million in the English market. Attempts at controlling output failed as the Dutch refused to cooperate. The European steel cartel cracked under intense competition. Only French steel producers had a good year in 1930. ? |
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Plagued by the record free world wheat crop of 1928 of 4.7 billion bushels, which left a 1/2 billion bushels surplus, wheat prices were now plumbing unknown depths in response to the Great Depression and the huge 1930 crops. |
Russia was trying to build up foreign credits
just as prices for commodities began to plummet. Stalin
imposed strict rationing and ignored the wheat shortage that
afflicted northern Russia. Ration card forgers were shot. ? It was the last wheat crop produced by privately owned farms. Many Russian farmers had refused to deliver their crops due to the low Depression prices in Russia. This was a bad mistake. Stalin took over both the crops and the farms themselves - but this, of course, was just a "single shot" gain. ? To protect her "profits," Russia took advantage of the summer rise in prices to sell short on many capitalist commodity markets. Through her All Russian Textile Syndicate, Russia sold 7.5 million bushels short on the Chicago exchange at prices above 90 cents during a four day period. This was about 3% of the total volume, during which prices fell 5 cents. ? Wheat prices broke below 80 cents, at which point the Farm Board once again felt it had the resources to peg them. In Liverpool and other European markets - where Russian wheat was actually being delivered - prices fell 10 cents to 20 cents lower than in Chicago by the end of the year. This cut off American wheat exports. ? All in all, the Russians seemed to be shrewd capitalists in 1930, squeezing their workers in ways far beyond the worst capitalist practices. Wheat prices in Liverpool hit 58 5/8 cents by the end of the year. This was the lowest since 1894, when it hit 57 7/8 cents, just a little above the all time low reached in 1654. Records went back to 1594. Plagued by the record free world wheat crop of 1928 of 4.7 billion bushels, which left a 1/2 billion bushels surplus, Great Depression wheat prices were now plumbing unknown depths. ? Besides wheat, Russia also used a substantial increase in her cotton crop for export. This offset the diminished production in the U.S. and helped drive cotton prices down too. ? The Russian collectivization and complete political and economic enslavement of her peasants appeared at first to be a big political and economic success. It wouldn't take long for peasant resentment and apathy to take the bloom off the economic elements of this success story. However, as a method of political control, the enslavement of the peasants on the so-called collective farms would remain a lasting success. ? Russia was actually being driven by its need to finance premature purchases of industrial equipment. Much of this equipment now lay idle and rusting for lack of raw materials or complimentary equipment. The Soviet agricultural exports, although dramatic and unexpected, were actually too small to be a major factor in world markets for more than the brief periods when the sales occurred. ? |
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Foreign bonds suffered sharp losses
as 1930 drew to a close. With international trade declining and
Wall Street credit now cut off, debtor nations could neither
repay nor refinance. Several Latin American nations were hard
hit. There was revolution in Brazil, destroying the value of
that nation's bonds. Gains by extremists of both the left and
the right marked German elections, and there were outbreaks of
violence in German cities, causing sharp declines in German bonds
as well. ? Dr. Schacht, former president of the Reichsbank, predicted cessation of reparations payments. The flight of capital out of Germany forced an increase in her bank rate to 5% in spite of the worsening Depression. Tariffs, quotas, higher taxes and interest rates were forced on the overburdened German public by the growing burden of her huge debts. ? The cumulative effects of reparations payments, massive debts, and the trade war - building up for more than a decade - had destroyed Germany -- and the whole world would pay the price. ? |
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The copper cartel again attempted to peg copper prices - at 12 cents per
pound - in November. This precipitous
rise of almost 3 cents resulted in a collapse of demand. Secondary
sources undersold the official price. Surplus stockpiles in producer
hands grew at a record pace. The peg slipped, falling below 10 cents in
February, 1931, the lowest level since 1896, with sales still
few and far between. Another attempt to
peg and then raise steel prices came in December. However, by the end of the year,
steel prices, too, were again slipping. ? As the trade war intensified and the decline in world trade accelerated, and price deflation accelerated, debt burdens became increasingly more difficult to bear, and the pressure on financial reserves increased. England, Germany, and other debtors suffered major losses of gold and hard currency reserves. Silver - which had been 65 cents per ounce in 1926 - declined sharply towards the end of 1930. It hit 30 cents at the end of the year and 26 1/2 cents on February 7, 1931. India, China, and Latin American nations that used silver denominated currencies were hard hit. English textile mills lost export business and cut purchases of cotton from America and elsewhere. ? The downward cycle in textiles was cut by the drop in cotton prices to well below 10 cents per pound. This and other wage and cost reductions permitted new low textile price levels that stimulated the textile business. Excess mill inventories had been reduced by the end of the year. Purchases of U.S. cotton for domestic mills and export reached good volume and the textile industry - especially after the partial recovery of silver prices in 1931 - remained fairly active during the remaining downward cycle of the Great Depression, except for a temporary reduction in the spring of 1932. This provided a text book example of the power of markets - when left relatively free - to adjust to even the worst of economic conditions. ? |
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Those foreign governments that were able to
retain good credit ratings refinanced huge blocks of their bonds at substantially
lower interest rates. England, France and the U.S. were primary
beneficiaries of this practice, which continued throughout the Great Depression
collapse, interrupted occasionally by the more severe moments
of financial crisis. Many financially strong businesses pursued
the same course. ? However, there was a worldwide adverse shift in the credit markets that more than overcame the beneficial impacts of sharply lower interest rates. A constantly increasing number of political and business entities with suspect credit were frozen out of the bond markets and thus faced substantially more difficulty in borrowing money. In November, 1930, several large Italian banks closed. ? |
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U.S. foreign trade declined $2.7 billion
in 1930 to a total of $6.9 billion. 1930 saw the smallest value
for imports since 1922, the smallest value for exports since
1921. Volume was reduced by just 11%, with the rest due
to lower price levels. ? In response to the Smoot-Hawley Tariff, Canada, Italy, France, Spain, New Zealand, and others raised tariffs. Thus was the interdependence of the economies of the advanced nations brought home - for those with eyes to see. |
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The financial breakdown accelerated.
Two more big board firms failed. With each breakdown, stocks
and commodities in which the insolvent houses specialized were
driven sharply lower as assets were liquidated to pay claims.
Bond yields declined sharply as bond prices moved higher for
those bonds that remained high grade. This reduced bank earnings,
forced banks to reduce their lending rates, and forced reductions
in interest rates that banks could pay for deposits. ? Then, as segments of the bond markets were hit with substantial declines, the banks lost on the principal of their bond investments. ? |
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Bank closings became a regular news item.
The Commerce Department Yearbook reported a record 1,345 bank
suspensions in 1930. Most were small rural banks. They were hit
by depressed commodity prices that ate away at the value of the
collateral they held on loans. Real estate loans were hard hit
by declining real estate values, now occurring in both rural and urban areas.
N.Y. Times figures showed 934 bank failures - 50% more
than the previous record in 1893 - with liabilities of about
$900 million - four times greater than the 1907 record. ? Non-bank failures were also a record, involving about $660 million in liabilities. The rising rate of liabilities per bankruptcy in the second half of the year indicated that these bankruptcies now involved many larger firms. ? In mid December, 1930, the Bank of the United States - with 60 offices in New York City - closed its doors. Its large portfolio of building and real estate mortgages had been hit hard. Reports of the bank's weakness had been hushed up since November, 1929. However, a run developed, and $52 million - about 25% of its deposits - were withdrawn in the last eight weeks, of which $20 million went in the last frantic week. About $160 million in remaining deposits were tied up pending liquidation of securities and settlement of accounts. The financial ramifications were fairly widespread and remained a regular part of the financial news for months after the closing. ? Despite the worsening Great Depression, savings were again rising. John Maynard Keynes and his followers would get the savings factor completely backwards. It was clearly depression - not prosperity - that left savings unused for lack of profitable investment opportunities. |
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An 8% increase in cotton crop estimates
was reported in September, driving the price below 10 cents.
Wheat prices were down below 73 cents, corn at 81 cents. ? The Farm Board held almost 9 million bushels of the 19.7 million bushels on the wheat market. The Stabilization Corporation held 110 million bushels bought for $100 million and quickly worth less than $75 million. This was about 10% of the total of the U.S. winter and spring crop (about 840 million bushels) plus carryover (about 225 million bushels). Exports of wheat and cotton surged at these low prices. ? |
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Price stabilization was again attempted
at prices around 76 cents for all futures contracts prior to
July, 1931. However, the total world wheat crop was second only
to the 1928 free world record, and Russia now pumped an additional
54 million bushels on the market, along with cotton and some
other agricultural commodities. World prices plummeted, and U.S.
wheat exports were again cut off. ? |
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As of December 1, 1930, the price declines
and drought had cut the value of U.S. crops by 27%. Corn
lost $2/3 billion, cotton $1/2 billion, wheat $1/3 billion. The
July, 1931 wheat contract - which was not pegged - sunk like a
stone to 61 cents.
Corn hit 69 cents and cotton 9 1/2 cents. ? Wheat fed to livestock increased from 90 million bushels in 1929 to 236 million in 1930 as a result of the higher corn prices. However, this substitution helped drag down the price of corn. Livestock prices dove about 40%, but the reduced feed costs helped maintain a thin margin of profits. ? Production costs for large agricultural producers had been reduced about 10% in recent years by improvements in agricultural technology, so profits were still being made. However, smaller farmers were now in a bad squeeze. ? |
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Agriculture no longer employed over half
the work force in the United States, as it had in the 19th
century. However, it was still by far the biggest employer - geographically
the most widespread - and still one of the most important elements
in the nation's gross national product. Worldwide and in the
U.S., massive agricultural overcapacity was sheltered behind
tariffs and other trade restraints and supported by price supports
and other subsidies. ? Agriculture in the U.S. and worldwide was devastated by the collapse of world trade. The closing of international markets prevented its recovery until WW II. Other industries suffered similar fates, as the Great Depression busted cartels in copper, steel, and rubber, and undermined the value of silver denominated currencies.
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When the summer drought broke, and as
autos, steel and other trade indices failed to equal normal fall
trade revival rates - and railroad car loadings actually declined
- the market declines resumed. ? By the end of September, 1930, business was actually declining during a period of the year when it normally increased. The investment trusts were already heavily committed. All markets fell sharply. ? |
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Steel was still the bellwether. In spite
of low production levels, U.S. Steel unfilled orders backlogs
declined over 1 million tons from their 1929 high point, to less than 3 1/2 million
tons - the lowest level since May, 1928. The stock market loss for September
amounted to over $7.5 billion - over 10% - to a new total
of just over $60.1 billion. The percentage decline was as bad
as June of 1930 and October and November, 1929. ? Heedless of volumes of confident assurances from administration leaders and business leaders alike, the market declines continued in October, as steel production slipped to 55% of capacity. Articles about unemployment and unemployment relief now became a constant feature of the news. ? FDR assailed Hoover's confidence game, do-nothing tactics and his failure to stop the 1929 speculative market boom. He didn't explain what should have been done. (Should the financial reins have been pulled in tighter, sooner, precipitating the Great Depression a few months earlier?) ? |
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On October 18, 1930, after almost a
full year of grinding Depression, the N.Y. Times 50 stock index
slipped below its November 13, 1929, lows. Short sales during
the 1929 period equaled only 0.14% of total shares. They
were now 0.38%. As more of the "bargain hunter"
buyers now took the certificates home, the floating supply of
shares available for loan to short sellers declined, and many
shorts now had to pay a premium for day to day borrowing of speculative
leaders. ? |
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Third quarter earnings looked bad. General Motors earned only 58 cents a share, but maintained its 75 cent
dividend by dipping into retained earnings. U.S. Steel earnings
were barely able to cover normal dividends. Bethlehem Steel dropped
its dividend payment to 60% of its normal level and still
had to dip into previous earnings. ? The President of Bethlehem Steel decided to call it as he saw it. He stated that the situation was bad and there was no relief in sight. He was immediately widely believed. The stock markets reacted with "acute discouragement." ? From the third quarter of 1930 onwards, an ever increasing volume of dividends maintained by dipping into previous earnings, dividends reduced, and dividends omitted, hit the stock market at its most vulnerable point. Stock market rebounds based on irrational hopes became increasingly difficult to maintain. ? One year after the Crash of 1929, dividend yields in the 5% range for the major industrial stocks indicated that the market was finally no longer discounting future economic recovery and stock price increases. However, it would take another 8 months before these yields would top 6% - a level indicating a pessimistic expectation of further declines. By that time, nobody would be able to claim that pessimism was "irrational." Reduced dividends now joined reduced bond yields in materially decreasing national income. ? Broker's loans fell even faster than market prices. By the end of 1930, they equaled only 3.86% of total Big Board value. Bull speculators were either giving up or being driven out. Great Depression lows in stock market and most commodity indices were being established and broken on a regular basis. ? The domestic bond market joined the decline - mainly because of the decline in railroad bonds - a segment that comprised a large proportion of the total. However, many other domestic bond issues remained at high levels. ? The Democrats won handsome increases in Congress in 1930, neatly balancing the Republicans in both the House and Senate. The electorate was beginning to punish the Republicans for their many economic policy transgression, which were complicit in subjecting America - and the entire world - to this growing economic catastrophe. The punishment would sharpen - justifiably - in succeeding elections, and continue until the end of the century. |
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The year end business decline was a disaster.
Auto registrations dropped 14% from September to October,
reaching 45% below October, 1929. Steel production dove
from 61% at the end of September, 1930, to 50%,
then 41%, at the end of the next two months. It reached
34% just prior to the holidays, and dropped to 24% during the holidays. ? As trade continued to decline, inventories in many manufacturing lines - which had been normal at previous trade levels - suddenly became a serious and expensive additional problem. The Big Board continued its decline, reaching $49 billion at year's end - barely above the November 13, 1929 low - and almost precisely in line with the decline in nationwide corporate earnings. (This fact undermines the more extreme views of the extent of the summer, 1929, stock market irrationality.) ? The continuing decline during the last quarter of 1930 was neither a panic nor "unreasoned." Instead, it was an impressive, day to day erosion of values closely reflecting day to day flows of bad news which continuously came in from all directions. ? |
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Wall Street gave absolutely no credence
any more to confident statements by economists, bankers, industrialists
and government leaders - all asserting the imminent return of prosperity - led by their new leader and prize soloist, Henry
Ford. Also of little consequence was the reduction of the Federal
Reserve Bank discount rate to 2%, the availability of
call money at 1 1/2%, and similar decreases in all other
interest rates. ? Analysts continuously reaffirmed their belief that the Depression had reached bottom. Discussion centered on where the buying upsurge would begin. Would it be railroad equipment, autos, or some other "deferred" needs? ? |
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The Hoover administration successfully
gained enactment of several relief bills. They provided $116
million for construction projects, $150 million for renewed Farm
Board subsidies, and $45 million for drought relief. ? By year's end, foreign and domestic bond markets were being periodically jolted by defaults and news of expected defaults, sending lower all but U.S. bonds and the highest grade corporate bonds and preferred stocks. The domestic bond averages reached the lowest level since 1924. Each time a foreign nation suffered financial collapse, American investors were hit by major losses. This was just one more way in which the trade war, the war debts, and other international indebtedness undermined the U.S. economy. ? |
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Corporate earnings were down by about 45%, almost precisely in line with the stock market decline.
While big ticket items like homes and auto sales dropped sharply, retail trade dollar volume was down just 8%, practically all due to lower prices rather than reduced volume. |
The figures showed the severity of the Great Depression.
Dun's commodity index down 17 3/4% - with grains down 26
5/8 % - textiles down 23 5/8%, and metals down 10
1/2%. Gross farm income, according
to Agriculture Department figures, had declined from $12 billion in 1929, to
$9 1/3 billion in 1930, despite Farm Board price support efforts. Employment fell
13%, and payrolls fell 10%. Manufacturing employment
was down 23% from its September, 1929 high. Manufacturing production declined about 13% below its average for the previous five
years - 19% below
1929. Corporate
earnings were down by about 45%, almost precisely in line
with the stock market decline. ? Retail sales for department stores, chain stores and mail order houses declined for the first time since 1921 - down 8%, 3%, and 9% respectively. Retail trade as a whole didn't do too badly. The National Dry Goods Association reported dollar volume down just 8% - practically all due to lower prices. However, sales of men's clothing, and sales of the big ticket items - houses and autos - dropped sharply. In several of the more affluent suburbs of N.Y. City, more than one third of those who held license plates in 1930 failed to obtain new license plates for 1931. Auto exports - which had been about 20% of sales in the 1920s - were cut about in half in 1930. ? Secured loans were estimated at $10 1/2 billion, down from a 1929 high of $17 billion. Almost all the decline was represented by the pullout of "others" as bank loans remained near 1929 levels. Country banks showed a substantial decline of about 15% in secured loans. Non secured bank loans declined about 10%. Capital was fleeing the weaker rural banks and flowing into the stronger N.Y. banks ? The decline in domestic trade that fall had been remarkably steady, and the decline in financial markets followed as a reflection of the business decline and the growing commodities surpluses. Underlying it all was the monotonously continuous and accelerating decline in foreign trade. A sharp upturn in cotton mill activities at the end of the year demonstrated that trade recovery could - if permitted - still be stimulated by low prices. ? |
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Even these impressive figures don't tell the whole story. Trade and prices were declining rapidly at year's end after being sustained by fairly respectable first quarter business levels. Thus, most of this decline happened in the last three quarters of the year, and the end of the decline was nowhere in sight. |
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Copyright © 2001 Dan Blatt