Butch Cooley Commentssss (Butch is founder of Leg Up House and the Butch Cooley Worldwide Hunting and Fishing . He has been an active trader for decades.)

Market Comments:
Part 2 of the Great Depression

The markets started rolling over in 1929, but they didn't hit bottom until 1932. Obviously it took a while, and it took a very long time for a recovery. Part 2 covers 1932 to 1935. 7 years had passed since the beginning of the Depression. Currently in 2009, we are approaching about 2 years of our "Recession". I really wonder if some of what is written here is destined to be repeated?


1932

"I pledge you, I pledge myself, to a new deal for the American people," from NY Governor Franklin D. Roosevelt as he accepts the Democratic Party nomination for president at Chicago. Roosevelt will go on to win a year later by a significant landslide, beating President Hoover, 472 to 59 electoral votes, and also took 57% of the popular vote. However, 1 million Americans cast their votes for the Socialist or Communist Party, as the economic depression was worsening, and people were looking for answers and change.

In January, Congress did authorize the RFC, Reconstruction Finance Corp, to help agriculture and the financial industry. Basically, the RFC used taxpayer money to help corporations create jobs and to stay financially alive.

Hoover requests that Secretary of the Treasury, Andrew Mellon, resign his position. Mellon has held the position since Harding's administration in March 1921. He is big supporter of trickle down economics, where business spending benefits all. He is replaced by Ogden Mills, who is Mellon's under secretary, and will continue Mellon's failed policies.

In March, Dearborn Michigan police fire on a crowd of about 3,000 men, women and children, who were demonstrating in front of the Ford Motor Company. Four people are killed, and some 100 are wounded. The wounded are taken to the hospital, but are handcuffed to their beds. We were just horrible back then when it came to works demonstrating. No tolerance level at all!!

WWI veterans and their families come to Washington DC in May. They are some 25,000 strong, and were known as the "Bonus Marchers". They are demanding payment of bonuses authorized by the Adjustment Compensation Act of 1924. The bonuses are not due until 1945 and amount to about $500 each. They started in Portland, Oregon and hijacked a train. A vet named William Walter took over in Washington, and brought some organization to the group, which grows in strength, taking the train across country. When they arrive, they camp out in city parks. The Police Chief in Washington DC is some what sympathetic and he gives out food and tents. However, a military plan is hatched, many believe by Gen MacArthur and President Hoover, to forcibly remove these people from the city property. Major Dwight D Eisenhower reports to Gen MacArthur that it would be very wrong for the Army to move against these people. None the less, on July 28, tanks head down Pennsylvania Ave, followed by cavalry, and infantry armed with machine guns and bayonets. They use tear gas to disperse the demonstrators, and rout out some 15,000 people. The American army against Americans. In the end, President Hoover claims the marchers are communists and criminals, and are moved out.

The DJIA falls to 41 pts on July 7. It is down from a high of 381. It rallies somewhat, but takes another run down in August, but stays above it's July low. A bottom has been put in. Stocks prices have lost 90% of their pre-crash values, and they will not reach their 1929 highs again until 1954.
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The US Controller of the Currency, announces in August of a moratorium on foreclosures on first mortgages to help provide some relief for homeowners.

Another 1,600 banks fail this year, 20,000 businesses will go bankrupt. The average weekly wage is now $17, down from $28 in 1929. And now infamous Breadlines start showing up all over major American cities. There is no money. All hope is being lost. The GNP (Cross National Product) will drop to $41 billion, over half of it's level in 1929.

6 nations indebted to the US default on their payments. Sec of the State Stimson proposes an additional year on moratorium of all foreign debt payments, and President Hoover refused.

Standard Oil of CA strikes oil in Bahrain. Texaco and SoCal merge.

Hoover Dam is getting underway. Boulder City is created to house workers and families. Housing cost about $500 to construct and rents for $15 a month to workers. US electrical rates peak at 36 cents per kilowatt hour.

US motorcar sales fall to about 1 million, down from 5 million in 1929. Soviet Russia starts up the Gorky Automobile Factory east of Moscow, and produces the Volga sedan. Ford engineers have helped to design and build the plant. Fiat introduces the Balilla at the Milan Auto Show. The car gets 34 miles to a gallon, top speed of 55 miles per hour. They will produce over 110,000 and will compete against Ford's Model T.



1933

Adolph Hitler comes to power in Germany. Franklin D Roosevelt becomes President. Both will "serve" for 12 years.

US wages have dropped. Here are a few I found for 1933. Congressmen were getting $8600 a year. A lawyer averaged $4,200. A doctors was averaging $3,400 a year. Engineers, $2,200. A school teacher averaged $1,200 a year. Construction workers averaged $900 a year.

When President Roosevelt takes over in March, there are 15,000,000 Americans out of work. "The only thing we have to fear is fear itself" is coined. Even those with jobs are earning 40% less than they did in 1929. Roosevelt starts out on a wild 100 days of policy changes to improve economic conditions. He appoints Henry Morgenthau as Sec of the Treasury. He believes in a balanced budget. He will spend $370 billion in the next 12 years, 3 times the amount spent by all 50 previous secretaries of the treasury combined.

The day following the Inauguration, Roosevelt proclaims a nationwide bank holiday for 5 days. Real estate values have totally destroyed bank assets on loans. Over 5,000 banks in America have closed since 1930. Fear of more failures brings Americans to the panic mark. The Emergency Banking Act is passed by Congress a day later, and gives the Treasury control over all banking transactions, foreign debt, and the export of gold. This is a period of a quick "Stress Test", and those deemed solvent are reopened. About 75% of US banks reopen for business on March 16.

Jesse Jones takes over the RFC replacing Eugene Meyer from the Hoover Administration. Jones will run the RFC until 1929. He will increase efficiency in loan applications, induce top executives to take salary cuts, hire financial experts, and will put pressure on corporate boards to remove inadequate CEOs. He requires the Postal Telegraph to merge with Western Union, as both can no longer supported by the failed economy. The RFC will help many companies to return to profitability, and save thousands of jobs. In 1946, when the RFC is dissolved, they will disbursed $50 billion in federal money, mostly in loans, and every cent will be repaid. The RFC becomes the future model for federal bail-out programs.

In March, Congress passes the Economy Act, which reduces government salaries by 15%. Congress is convened on Mar 5th, stays in emergency session for a continuous 100 days (that's unheard of!) and President Roosevelt will sing 15 bills related to the economy.

Roosevelt signs Order 6102, on April 5, which requires all private gold holding to be surrendered to the Federal Reserve in exchange for currency. The US abandons the gold standard two weeks later. This was the end of the $20 Double Eagle Gold pieces. However, some survived.

The States are broke, so a Federal Emergency Relieft Act passed by Congress in May, provides $500 million in a fund that can be used as grants to the States. There is an Amendment to the Federal Banking Act that allows direct purchase of federal securities by the Federal Reserve Banks.

The US Employment Service is created in June, to find jobs for the unemployed. Minimum wage is 38 cents an hour.

The Glass Steagall Act goes into effect in June. It was known as the Banking Act of 1933. This created a "wall" between commercial banks and the securities industry. Up until now, banks had been investing their own "assets", in different securities. The began making unsound loans to shore up the company or the price of their share. The Banking Act of 1933 prohibited this. (You would think we would learn from the past!!). But it didn't stop the banks at all. JP Morgan simply split his bank and became Morgan Stanley. It also required banks to start insuring bank deposits. Of special note, of course this bill was opposed by the banking industry. Various Senators put on a filibuster that lasted 3 weeks. But eventually it passed. The last remnants of this Act was repealed in 1999. At the time of this writing, I have not gotten into this yet. But I will for next week.

Also in June Congress passed the National Industrial Recovery Act. This named 700 industries that must provide for codes of fair competition (collective bargaining). The work week was shortened from 6 days a week to 5. The work day was shortened from 12 hours a day to 8 hours a day, and these industries would have to pay between $12 and $13 per week, and limit child labor to only 40 hours. Later companies will get around the law requiring works to only put in 8 hours a day, but must produce as much as they did on a 12 hour day. This Act is not very well received by big business in America.

This was followed up in August by the formation of the National Labor Board, which would enforce the right of collective bargaining.

President Roosevelt establishes the Civil Works Administration, in November to provide emergency jobs for about 4 million American workers through the winter of 1933.

Workers at the Hormel Packing Company in Austin Minnesota went on strike and simply sat down and refused to move. This was the first sit down strike of it's kind. It got used a lot after this.

The Dow closed the year out up from 60 pts at the end of 1932 to 100 pts at the end of 1933.


1934

President Roosevelt announces to Congress in January, that costs of the national economic recovery program will reach $10.5 billion by June of 1935.

The U.S. Treasury stabilizes the price of gold in January at $35 per ounce, a price that will hold for 40 years. The price has risen progressively since late October 1933 from its long-maintained level of $20.67 per ounce.

The Export-Import Bank of Washington created February 12 with $11 million in capital helps to finance and facilitate exports and imports of commodities; $10 million has come from the Reconstruction Finance Corp. (RFC) created in 1932.

The Civil Works Emergency Relief Act passed by Congress February 15 appropriates another $950 million for the continuation of civil works programs and direct relief aid.

U.S. Relief Administrator Harry L. Hopkins reports April 13 that 4.7 million families are on "relief".

The Johnson Debt Default Act passed by Congress April 13 forbids additional loans to any country in default of debt payments to the United States.

Congress creates a National Railroad Adjustment Board to guarantee railway workers the right to organize and to bargain collectively through representatives of that they choose.

The Corporate Bankruptcy Act adopted by Congress June 7 allows corporations to reorganize if they can obtain support from two-thirds of their creditors.

Secretary of State Cordell Hull persuades Congress that the high tariffs of the 1930 Smoot-Hawley Act have contributed to world depression and should be replaced by mutual tariff relaxation.

The Federal Credit Union Act goes into effect in June, which gives the government control of credit unions. The Federal Savings and Loan Assoc is also formed and the FDIC makes it's first payment to a depositor on July 3.

The summer of 1934 is full of strikes. 12,000 Longshoremen go on strike in California, complaining of corruption. Minneapolis police fire on striking Teamsters. Sympathy strikes show up for the first time in America.
The largest workers strike in US history begins on Labor Day. 500,000 manufacturing workers walk of the job in 20 states. Many of these strikes fail, because so many people are out of work, anyone will cross a picket line to get a job. Many strikers loose their jobs.

The Swiss pass laws to protect the accounts of Jewish people living in Nazi Germany. These become the first Swiss numbered accounts. Years later they are expanded to just about anyone, and become known as "off shore" accounts.

The Securities and Exchange Commission is created by Congress. They were set up to limit the amount of credit available for speculators and to police the securities industry. Obviously they didn't do such a great job over the years.

DJIA closes on the year at 104, and is up from 100 pts in 1933.


1935

President Roosevelt makes this statement, "We must quit this business of relief", in his January address to Congress.

Oliver Wendell Homes, a former Supreme Court judge dies in March at 94. He leave the majority of his estate, valued at over $260,000 to the US Government. It will become the largest "gift" ever made to the American people. The money will just lay idle for over 20 years, and does not even collect interest during those years.

The Bank of Canada is formed to become the fiscal agent governing money control for Canada, the Canadian version of the Federal Reserve. And they become the only agency that can print money.

The Emergency Appropriations Act is passed and funded $5 billion to provide work and increase employment by creating "useful projects".

Roosevelt signs the Social Security Act into law in August.

You have to really think about this one: Roosevelt reports that IRS figures for the year. 1/10th of 1% of US corporations owns 52% of all corporate assets. And they earn 50% of all the corporate income. Less than 5% own 87% of all corporate assets, and less than 4% earn 87% of all net profits in all US corporations.

The Federal Reserve Bank came into existence in 1913. But in 1935, Roosevelt gives in the authority it has today. They are allowed to buy and sell government securities, control the nation's supply of money, and regulates checking accounts and requires banks to contribute to the FDIC.

Ft Knox is established in Kentucky to hold all US government gold.

The United Automobile Workers (UAW) is founded in August in Detroit. It has approximately 25,000 members.

The REA, Rural Electrification Administration is formed by Congress and signed into law my Roosevelt. 10% of 30 million rural residents in American have electrical power. In 1950, 90% will have power.

There is an estimated 6.5 million windmills in the US, and most are pumping water or running sawmills. But the wind generator is on the table and we are producing small amounts of electricity. What I found amazing about this is we are back to talking about the same thing, some 70 years later.

The Boulder Dam is completed on the Arizona and Nevada border, 2 years ahead of schedule, and in only 4 years of construction time. Over 5,000 people were employed in the process. 145 men died during construction, and contrary to urban legends, no one is buried in the concrete.

The Dow closes 1935 at 144 pts, up from 104 last year. "Things" seem to be improving.

Wall Street's Dow Jones Industrial Average closes December 31 at 144.13, up from 104.04 at the end of 1934.

BC