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

Great Depression Part 3 (1936 to 1940)
 

The Depression is now entering it's 8th year.  Labor unions are becoming more powerful and will help lead the country out of depression, in addition to adding to a middle class America.  And middle class will add to the taxes that are collected.  Hydro-electric dams are paving the way for cheaper electrical power.  Many of President Roosevelt's New Deal policies are beginning to take hold in the economy and there are signs of stabilization.  

1936

The "Sit Down Strike" has become extremely wide spread and very effective.  It has spread into Europe,  In June, France has many sit down strikes, which involve more than 300,000 workers.  One of the reforms gained by this type of measure is the 40 hour work week. Another is paid vacations.  One of the draw backs to labor reforms are higher production costs.  Big business never gracefully accepted any of these reforms, and many of the new labor laws are challenged in the Supreme Court.

The US Supreme Court overturned a 1933 New York minimum wage law for women as being unconstitutional.

British author and economist, John Keynes, has promoted the idea that "laissez-faire" capitalism does not work all the time.  But depressions can be avoided  by government involvement, such as investing in public works.  Also Keynes is a believer that money must be injected into the economy, not withheld, even if it means printing surplus money.  Injected capital will allow for stabilization, the capitalism system would return to normal with a long term growth rate.  Keynes also claims depressions are not only unhealthy, but totally unnecessary. 

 "Unemployment develops . . . because people want the moon; men cannot be employed when the object of desire (i.e. money) is something which cannot be produced and the demand for which cannot readily be choked off. There is no remedy but to persuade the public that green cheese is practically the same thing and to have a green cheese factory (i.e. central bank) under public control"

The Bank of China is founded.

 The Bureau of Labor reports that 12 million families are earning less than $1000 a year.  The current poverty level is considered to be about $1,300.  And this number is about 40% of all the American families living in the US at the time.
 

The Dow closes out the year at 179 pts, up from 144 pts in 1935.

The Boulder Dam starts beginning electrical power generation in early 1936. It produces 2 billion watts of very inexpensive power, most of which is going to Los Angeles. It cuts the cost of power production 50% over oil fired plants. The dam operates with 17 hydroelectric turbines.

The Hunt Oil Company is formed and will go on to become the largest independent oil and natural gas producer in the US for many years. H.L. Hunt will move his headquarters to Dallas, Texas and earn in excess of $1 million per week. Not bad in a depression.

1937

President Roosevelt's inaugural address is Jan 20^th, moved from Mar 4 by the 20^th Amendment. His quote of the day, “"I see one-third of a nation ill-housed, ill-clad, ill-nourished."

It's a big year for unions. GM recognizes the UAW as the sole collective bargaining agent for all workers employed by GM. US Steel permits unions to organize their plants. This in itself was an amazing deal, as steel is the big “company” in the US. Unheard of labor benefits are being created. Besides the 40 hour work week, they attain the right to strike, a $5 a day minimum wage, seniority rights, and even grievance procedures.

But big business is not taking all of this lying down. The Supreme Court continues to over turn many lower court decisions that have favored both Roosevelt's New Deal and organized labor. Roosevelt hatches a plan to basically by pass the the Supreme Court, who he sees as a bunch of old men, paid off by big business. For every justice over 70 years old, he would get to appoint another justice. This would have meant 6 new judges on the Supreme Court for a total of 15. But it never gets beyond the talking stages and finds no Democratic support.

The recovery is now in it's 4^th year. And it has progressed fairly well. But it will fall apart again in mid 1937. The Dow will fall from it's high of 194 pts following it's low after the crash. Again, nothing goes straight up, not ever.

The NY Federal Reserve Bank will open the discount rate at 1% in August. It will remain at 1% until 1948.

The Dow closes down for the year, at 121 pts, but off the year low of 113 pts.

The Standard Oil Company of New Jersey drills the first offshore well in Louisiana.

The Bonneville Dam is opened on the Columbia River in the northwest. At the dedication, Roosevelt makes this statement, "Truly, in the construction of this dam we have had our eyes on the future of the nation. Its cost will be returned to the people of the United States many times over in the improvement of navigation and transportation, the cheapening of electric power, and the distribution of this power to hundreds of small communities within a great radius."

Commercial air service is established between British Columbia and Seattle, WA by a new airline known as Trans Canada Air Lines, and becomes Air Canada in 1965.

US Airways has it's beginning in Washington DC providing airmail service. Known then as All American Aviation, and founded by Richard Du Pont, they will begin passenger service in 1949 and be known as Allegheny airlines and will become US Air in 1979.

Germany retires the Graf Zeppelin after 144 ocean trips. They have carried over 13,000 passenger. The Hindenburg explodes in New Jersey on May 6^th. She carried 50 passengers in style, at 78 miles per hour. 36 people are killed, and 13 of those were passengers.

Amelia Earhart disappeared after leaving New Guinea on July 2.

The Golden Gate Bridge opens on May 27^th.

The Lincoln Tunnel is opened in late December, linking Manhattan to Weehawken, NJ. Almost 1.8 million people will pay a 50 cent toll the first year to use the 8,000 foot tunnel.

GM introduces the first automatic transmission, called the Hydra Matic Drive, and it's an option only in the 1938 Olds.

The Pierce-Arrow goes out of business.

The Cord, Model 812, is introduced by the Auburn Auto Co.

Toyota is founded.

1938

This is a relatively boring year as far as the “recovery” goes. But energy and transportation have some new innovations.

In April, Roosevelt asks Congress for another $3 billion to re-stimulate the economy, as almost 6 million American workers remain unemployed.

In May, Congress reduces taxes on corporation profits, and in June they pass the Emergency Relief Appropriations Act.

The Wage and Hours Act is signed by Roosevelt in June, which limits working hours. This is the first national attempt to standardize wages and hours. First year, 44 hours, second year 42 hours and eventually goes to the 40 hour work week. Overtime is now required beyond these hours at a rate of 1 and ½ times the normal rate. Minimum wage is established at 25 cents per hour. After 6 years it will increase to 30 cents. But all farm workers are excluded.

Former NYSE president Richard Whitney is indicted on embezzlement charges. He has taken over $1 million worth of bonds from clients accounts and has put them up at collateral for his personal bank loans. He pleads guilty. The New York Daily News prints, “"Not in our time, in our fathers' time nor in our grandfathers' time has there been such a social debacle.” Guess Mr. Madoff has taken over in our time!!

The NYSE halts trading on Dec 2 on McKesson and Robbins stock, after charges of fraud is made by a lone stockholder. However, by Dec 14^th, it is apparent the the stockholder is correct. $18 million is missing in assets. When the FBI arrives at the home of Donald Coster, President of the company, he goes to his bathroom and shoots himself.

The Dow hits a yearly low of 131 pts, but it rebounds in Dec to close at 154, which is up from 120 pts at the end of 1937.

Kuwait strikes oil.

Aramco in Saudi Arabia strikes oil.

Mexico nationalizes their oil industry and basically kicks out the British and US oil companies.

After many years of reported mismanagement, bribes, and illegal activity, Congress convenes a committee to investigate corruption allegations on the part of the Tennessee Valley Authority (TVA).

GE introduces the fluorescent light bulb.

The Civil Aeronautics Authority is created by Congress to regulate the every fast growing investment in the US aviation industry.

Howard Huhes sets a round the world speed record in a Lockheed plane. He flies from California to California in 3 days, 19 hours and 14 minutes. Hughes is 32, and is earning an estimated $3 million per year in the Hughes Tool Co and now is expanding into flying and Hollywood film making.

George Corrigan flies nonstop from LA to NYC on July 16^th. He plans a return flight, but somehow gets turned around and ends up in Dublin, Ireland 28 hours later. He insists he had compass problems and becomes known as “Wrong Way” Corrigan.

Douglas Aircraft reports sales of about $28 million as the DC-3 begins a long history in the aviation industry.

Railroads struggle throughout the entire depression. Declines in freight and the boom in aircraft industry puts 1/3 of the entire track control of 77,000 miles in receivership.

The VW makes it's debut in the automobile industry. Designed by Porsche, and assembled by hand, it gets 33 mpg, and top speed of 63 mph, and has a low maintenance air cooled engine. A NY Times reporter calls it a “Beetle” in a auto article, and it sticks forever.

1939

War in Europe is on going and becoming a looming issue for the United States.

Congress amends the Social Security Act of 1935 to include widows and orphans.

17% of the workforce in the US is unemployed. Even though the numbers have dropped from a high of 15 million to about 10 million, even those working make very little money. 4 million Americans have incomes above $2k a year. 200,000 are making over $10k. 42,000 are earning above $25k per year. However, less than 3% of all Americans have income large enough to pay any taxes.

Charles M Schwab dies broke in NY from heart disease. His fortune was once estimated to be over $200 million.

The Dow closes the year at 150 pts, which is slightly down from 1938.

In order to allow an additional week of the retail Xmas season, Roosevelt signs a proclamation making November 23 Thanksgiving Day. Only 23 states accept the idea. 22 states stay with the old Thanksgiving Day and both Texas and Colorado decide to celebrate both days.

Pan Am starts the Yankee Clipper, using a Boeing “flying boat”, and offers commercial passenger service from NY to Marseilles, via the Azores and Lisbon. Europe in now a plane ride away and just over one day travel time. The plane is first class and unique. It boasts separate passenger cabins, dining salon, ladies dressing room, rec lounge, and sleeping berths. It even has a bridal suite. The flight averages 27 hours one way, and round trip is $750.

British Airways starts passenger service.

Sikorsky introduces the VS 300, which has a rotor over a cabin, and uses a vertical rotor on the tail for direction control. They will produce over 400 of these units by mid 1945.

Howard Hughes buys Transcontinental and Western Airlines (TWA)

Lincoln Mercury is introduced by Ford.

Less than 60% of US families own autos. By 1960 over 80% will own autos.

The Justice Department indicts GM, Ford and Chrysler for attempting to set up a monopoly on auto financing, by forcing dealers to use GMAC. A “deal” is struck out of court and the indictments themselves are dropped. GMAC will go on to become the single largest auto finance company ever, and will bring in nearly 20% of GM profits.

1940

If 1938 and 1939 were boring, 1940 is definitely not. Britain is at war. France, Belgium, the Netherlands, Luxembourg, Demark, Norway, and Romania have fallen to Nazi German. Britain stands alone, and is realizing that she is now totally dependent on the US. The world is about to change, and the Depression is about to end because of the changes.

Churchill becomes prime minister. “I have nothing to offer but blood, toil, tears, and sweat....You ask, what is our policy? I will say: It is to wage war, by sea, by land and air, with all our might and with all the strength that God can give us . . . You ask, what is our aim? I can answer in one word: It is victory, victory at all costs, victory in spite of all terror, victory however long and hard the road may be: for without victory, there is no survival."

In spite of great and moving speeches, Britain is in real trouble and needs the US involvement. "We shall fight in France, we shall fight on the seas and oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our island, whatever the cost may be, we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender."

But victory against Germany grows dimmer every day. To the point where Churchill sends his friend William Stephenson to NY with plan to oversee espionage activities in the West and use all of his political connections to bring American into the War, and insure that they come in on the side of Britain. At that time, no one was certain that we would.

American is not ready to enter the War, and the idea is not very popular. But helping Great Britain by building ships, puts the unemployed back to work.

Former President Hoover warns America against entry into what he calls the “European War.” "I am certain that the next war will absolutely transform us. I see more power to the government. Less power to the people. That's what I fear. Because once this starts, it is irreversible . . . You can't extend the mastery of the government over the daily life of a people without making government the master of those people's souls and thoughts, the way the Fascists and Bolsheviks have done."

Roosevelt disagrees, and on Dec 29, 1940 using his famous fireside chats says, “The Nazi masters of Germany have made it clear that they intend not only to dominate all life and thought in their own country, but also to enslave the whole of Europe, and then to use the resources of Europe to dominate the rest of the world . . . We must be the great arsenal of democracy. For us this is an emergency as serious as war itself."

In 1940 Roosevelt submits his $8.4 billion budget, and $1.8 billion is for defense. In May he asks Congress for another $1.3 billion for defense. Congress complies with $1.5 billion in June in what is known at the Naval Supply Act. They add $1.8 billion later in June, and $4 billion more in Sep for the Army and Navy. Again they add an additional $1.5 billion in October. There is no doubt America is gearing up for war. But these “dollars” go directly into workers paychecks, supplier's bank accounts and contractors profits. America is finally stabilizing. Unfortunately, it takes a World War II as the catalyst. Of course this all takes time.

The first Social Security checks to retired Americans go out on January 30^th.

Unemployment is still a problem, with out of work Americans around 8 million. World War II is going to solve this problem.

Congress passes the Export Control Act in July. It gives the President the power to halt the export of materials deemed vital to US defense. Aviation gas is restricted. Even scrap iron is halted.

And Jessie Livermore, the guy originally blamed for starting the stock market crash, has lunch by himself one bright day in November. He goes back to the Squibb Building office that he started a year previously. He has a drink, goes into the men's room, and shoots himself with a .32 Colt. He was 63.

The Dow closes 1940 at 131, down from 150 pts in 1939.

The US will be attacked at Pearl Harbor shortly by Japan.  We will enter the War.  The Dow will continue down until late April 1942, and will then make a recovery up to the 150 pt area, where it will stay range bound until the end of the war. But for all intent and purpose, the Great Depression ends with World War II.

 

BC