Monetary & fiscal stat comparisons, 1929 and now
This is not just a deep recession or depression
As of mid 2009 and although there are a number of statistics that are doing very similar things to the 1930s (like unemployment and industrial production), the following stats are *much* higher now than then; CPI, bank credit, M1, base money and M3 money.
The same charts as above, except starting in March 2000 instead of October 2007
Commodity Index performance, various periods including the 1930s
Fed System Open Market Operation balance, 1920-1940
Little known facts about the Great Depression
Call money interest rates (the interest rate charged when buying stocks) peak at around 20%. The Dow closes very close to its Sepptember 3rd 1929 high at 380.18.
-- March 26, 1929
The Federal Reserve bank of the U.S. raises its key interest rate, the discount rate, a full percentage point to 6% from 5% (where it had been since mid 1928).
-- August 8, 1929
“. . . Traders who would formerly have taken the precaution of reducing
their commitments just in case a reaction should set in, now feel confident that they can ride out any storm which may develop. But more
particularly, the repeated demonstrations which the market has given of
its ability to “come back” with renewed strength after a reaction has
engendered a spirit of indifference to all the old time warnings. As to
whether this attitude may not sometime itself become a danger signal,
Wall Street is not agreed.”
-- New York Times, September 1, 1929
The actual 1929 high of the Dow Jones average occurs at a level of 381.17.
-- September 3, 1929
Roger Babson, a popular economic foprcaster of the day, makes a bearish prediction. He won his nickname as "the Prophet of Loss" this day, and unjustly received some of the blame for the crash. The exact phrase he used was "riding to a fall".
-- September 3, 1929
The Bank of England raises its key interest rate, the discount rate, a full percentage point to 6.5% from 5.5% (where it had been since February 1929).
-- September 26, 1929
The Federal Reserve bank of the U.S. lowers its key interest rate, the discount rate, a full percentage point to 5% from 6%.
-- October 1929
Black Thursday, when the Dow fell from 305.85 to a low of 272.32, and closed at 299.47 (note that it had closed on October 10th at 352.86)
-- October 24, 1929
Brokers Believe Worst Is Over and Recommend Buying of Real Bargains
Wall Street in looking over the wreckage of the week, has come generally to the opinion that high grade investment issues can be bought now, without fear of a drastic decline. There is some difference of opinion as to whether not the correction must go further, but everyone realizes that the worst is over, and that there are bargains for those who are willing to buy conservatively and live through the immediate irregularity.
-- New York Herald Tribune, October 27, 1929
Black Tuesday, when the Dow fell from 252.38 to a low of 212.33, and closed at 240.07.
-- October 29, 1929
The Bank of England lowers its key interest rate, the discount rate, from 6.5% to 6%. It was at 5% by mid December.
-- October 30, 1929
- "President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days."
-- Washington Dispatch, March 8, 1930
- "The spring of 1930 marks the end of a period of grave concern... American business is steadily coming back to a normal level of prosperity."
-- Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930
- "While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States - that is, prosperity."
-- President Hoover, May 1, 1930
- "Editorial defending World War veteran's relief bill. Expected Hoover veto may be overriden by Congress, but the bill has already been much improved to reduce unfairness and waste. Defends admittedly large spending soon to approach $1B, considering promises to recruits made in 1917 and number of disabled veterans not yet cared for. While some waste remains it's not the worst example considering the $500M spent on wheat and cotton support, etc."
Some current stock prices as percentage of their 1929 highs: Krueger 17%, Chrysler 18%, Montgomery Ward 21%, IT&T 27%, GM 42%, Woolworth 49%, US Steel 58%.
Col. Ayres, VP Cleveland Trust, predicts an abrupt recovery in stock and commodity prices by Labor Day due to current consumption exceeding production. Distinguishes between two types of depression, “V”-shaped and “U”-shaped.
Smoot Hawley trade protectionism bill signed by Hoover this week.
In spite of not having any tax revenue for the past two years Chicago is only carrying about $95 per capita of debt, compared to $245 for New York City.
-- Wall Street Journal, June 25, 1930
- "The worst is over without a doubt."
- James J. Davis, Secretary of Labor, June 29, 1930
- "Gentleman, you have come sixty days too late. The depression is over."
-- Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930
- "Gasoline consumption first 5 months of 1930 up 12.6% over 1929; May consumption up 5.3% over 1929."
-- Wall Street Journal, July 3, 1930
"Last Monday, all businessmen were
shocked to read in their morning papers
that the British pound sterling was no
longer based on gold. The Tokyo Stock
Exchange had announced that it would not
open. Tokyo was followed by Bombay, Calcutta,
Johannesburg, London, Berlin, Amsterdam,
Copenhagen, Vienna, Oslo,
Stockholm, Brussels and Athens. The Paris
Bourse opened, but limited all trades to 5%
of all holdings and no dealing in foreign
exchange. Montreal’s Exchange opened
similarly restricted. The New York Stock
Exchange remained open, but as in dark
November 1929, short selling was forbidden.
In the artificial market thus created,
stocks gyrated unsteadily, closed higher;
bonds closed at lows for the year."
"So far during the Depression the Stock
Exchange has moved against bears by the
Questionnaire and the complete ban on
shortsales which was imposed for two days
when Great Britain suspended gold payments.
The Questionnaire was used in the
autumn of 1929 to learn the extent and
personnel of the ‘bear party.’ President
Richard Whitney (of NYSE) later revealed
the short interest was at no time large during
the days of great breaks. It was used
again last May and members who were too
aggressive in their tactics received sharp
callings down. The Questionnaire in effect
last week revealed every bear, whether he
was short 10 shares or 10,000 for one hour
or one month. It placed the Exchange in a
position to act if it wished to, but did not
deter ‘gentlemen’s agreement’ to refrain
from taking short positions."
"In few nations nowadays is there a ‘free
and open market.’ The Berlin Bourse
closed from July 13 to September 3, opened
with shortselling banned, then closed again.
In Great Britain all trades were put on a
cash basis which practically eliminated
shortselling as did restrictions imposed on
the French and Athenian Bourses. On the
Paris Bourse a seller must deposit 40%
margin, also 25% on the amount of the
stock sold which makes bear activities a rich
man’s privilege. One of the most dramatic
events of the present crisis occurred in Amsterdam
on September 21 when after a terrific
slump in prices, all transactions were
cancelled, the Exchange closed in status
quo. Montreal and Toronto met the British
crisis by banning shortsales and establishing
’minimum prices’ for securities, but both
last week were open with no restrictions.
The Tokyo Exchange has been closing and
opening repeatedly during recent weeks.
Tokyo stocks broke badly when the shares
owned by interests who operate the Exchange
-- Time magazine, September 28, 1931 edition
"...Great Britain is a highly populated industrial country, carrying a terrific burden of internal debt, dependent predominantly for existence on foreign trade, enjoying the benefits of being the world's chief banking centre, possessed of a large net income from long-term investments abroad, but heavily indebted (in her role as world's banker) to other centres on short- term account."
-- Economist, September 26, 1931, p. 548
"The facts must be faced that the disappearance of the pound from the ranks of the world's stable currencies threatens to undermine the exchange stability of nearly every nation on earth; that even though London's prestige as an international centre may gradually recover from the blow which the sterling bill has received, banking liquidity throughout the world has been seriously impaired, much more so in other countries than this; that international trade must be temporarily paralysed so long as the future value of many currencies is open to grave uncertainty; and that, though the memory of the disastrous effects of post-war inflations should be a useful deterrent, there is an obvious risk lest we may have started an international competititon in devaluation of currencies motived [sic] by the hope of stimulating exports and leading to a tragic reversion to the chaotic conditions which existed five or six years ago."
-- "The End of an Epoch," London Economist, September 26, 1931, p. 547
The suspension also of the gold standard in Great Britain had three important results. Firstly, it gave a further shock to confidence. Secondly, it prevented foreign banks from drawing upon their sterling balances except at a heavy loss, and so drove them back on their dollar balances. Finally, it destroyed all faith in the safety and efficacy of the gold exchange standard, for foreign central banks found that the sterling exchange which they had legitimately held as part of their legal reserve had lost part of its value, thereby undermining their own stability, and inflicting upon them losses in many cases commensurate with their own capital."
-- London Economist, "America's Money Problems," October 10, 1931, p. 646
"It was inevitable that the suspension of gold payments in England should have a profound effect upon the position of leading central banks. Some who were engaged in operating the gold exchange standard were in possession of susstantial holdings of sterling as part of their legal reserve against their notes and other sight liabilities while others - such as the Banque de France - held equally large quanities of sterling, even though they were operating on the full gold standard. All these central banks have had to face a 20 per cent. depreciation of their holdings of sterling, which for many of them means a substantial proportion of their legal currency reserves.
"This situation has already had several far-reaching results. Many countries have summarily abandoned the gold exchange standard as a snare and a delusion, and their central banks have begun hurriedly to convert their devisen into gold. The general tendency has been to leave their sterling holdings intact, but to exchange their dollar balances and bills for gold; and this is a major cause of the recent efflux of gold from the United States. Again, commercial banks have not been immune from the consequences of the crisis, and have had to meet the suspicion and distrust of their customers. fostered by very numerous (if not individually very important) bank failures all over the world. They have had to face the immobilisation under the 'standstill' agreement of such part of their assets as they had ventured in Germany and central Europe; they have suffered, in common with the central banks, a 20 per cent. depreciation of their sterling holdings; and, last but not least, they have had to deal with the widespread dislocation to trade caused by the depreciation of sterling, which is the currency of world commerce. Thus commercial banks have, on the one hand, witnessed an outflow of notes into the hands of distrustful customers, and, on the other hand, they have had to mobilize their available assets, both at home and abroad, in preparation for further demands for currency."
-- "The Gold Rush," Economist, October 24, 1931, p. 746
"...in the United States, the position of the banks, though partly concealed from the public eye, may be in fact the weakest element in the whole situation. It is obvious that the present trend of events cannot go much further without something breaking. If nothing is done, it will be amongst the world's banks that the really critical breakages will occur."
"The Consequences to the Banks of the Collapse of Money Values", Lord Maynard Keynes, (Aug. 1931) in Essays in Persuasion, p. 177
"...the competitive disadvantage will be concentrated on those few countries which remain on the gold standard. On these will fall the curse of Midas. As a result of their unwillingness to exchange their exports except for gold their export trade will dry up and disappear until they no longer have either a favourable trade balance or foreign deposits to repatriate. This means in the main France and the United States. Their loss of export trade will be an inevitable, a predictable, outcome of their own action. [...] For the appreciation of French and American money in terms of the money of other countries makes it impossible for French and American exporters to sell their goods. [...] They have willed the destruction of their own export industries, and only they can take the steps necessary to restore them. The appreciation of their currencies must also gravely embarrass their banking systems.
-- "The End of the Gold Standard", Lord Maynard Keynes, (Sept. 27, 1931) in Essays in Perusasion, pp. 292-293
Countries leaving the Gold Standard, April 1929 - April 1933
APRIL - URUGUAY
NOVEMBER - ARGENTINA
DECEMBER - BRAZIL
MARCH - AUSTRALIA
APRIL - NEW ZEALAND
AUGUST - MEXICO
SEPTEMBER - UNITED KINGDOM, CANADA, INDIA, SWEDEN, DENMARK, NORWAY, EGYPT, IRISH ,FREE STATE BRITISH MALAYA, PALESTINE
OCTOBER - AUSTRIA ,PORTUGAL, FINLAND ,BOLIVIA, SALVADOR
DECEMBER - JAPAN
JANUARY - COLOMBIA, NICARAGUA, COSTA RICA
APRIL - GREECE, CHILE
MAY - PERU
JUNE - ECUADOR ,SIAM
JULY - YUGOSLAVIA
JANUARY - UNION OF SOUTH AFRICA
APRIL - HONDURAS, UNITED STATES
-- William Adams Brown, Jr., The International Gold Standard Reinterpreted, 1914-1934 (New York: National Bureau of Economic Research, 1940)
"The real crux of the Reserve system's position is that, while the ratio of the gold cover to its notes need be only 40 per cent., the remaining 60 per cent. of the notes must be covered either by gold or by eligible paper, and this last excludes Government securities bought in the open market, and in practice consists of rediscounted Treasury bills and also of acceptances and other credit instruments based upon trade. Now the depressed state of trade has reduced the Reserve Banks' holdings of assets of this last kind and has forced then en defaut de mieux to add enormously to their holdings of Government securities. The actual figure for the last-named was $728 millions last August, against only $150 million two years before, while during the same period 'eligible paper' had fallen from $1.141 to $316 millions. Add to this the actual and potential increase in the note circulation, and it is clear that this is the major factor in any calculation of the minimum gold requirements of the United States."
-- Economist, October 10, 1931, p. 647
"In 1928, there had been 491 US bank failures. In 1929, the figure had risen to 642. By 1930, as the collapse of the domestic real estate bubble began to take its toll, bank failures had risen to 1,345. In the wake of the British default, American "bank runs and failures increased spectacularly: 522 commercial banks with $471 million in deposits suspended during October 1931; 1,860 institutions with deposits of $1.45 billion closed between August 1931 and January 1, 1932. At the same time, holdings by the 19,000 banks still open dropped appreciably through hoarding and deterioration of their securities."
-- Susan Estabrook Kennedy, The Banking Crisis of 1933 (Lexington, Kentucky: University Press of Kentucky, 1973)
"People will endeavor to forecast the future
and to make agreements according to their
prophecy. Speculation of this kind by competent
men is the self-adjustment of society
to the probable...This court has upheld
sales of stock for future delivery."
-- Justice Oliver Wendell Holmes, in a U.S. Supreme Court decision from 1905
"It was now evident why
the European crisis had been so long delayed.
They had kited bills to A in order to
pay B and their internal deficits. I don’t
know that I have ever received a worse
shock. The haunting prospect of wholesale
bank failures and the necessity of saying not
a word to the American people as to the
cause and the danger, lest I precipitate runs
on our banks, left me little sleep. The situation
was no longer one of helping foreign
countries to the indirect benefit of everybody.
It was now a question of saving ourselves."
-- Memoirs of Herbert Hoover, U.S. President 1928-1932, about the 1931 world financial crisis
"There have been in some localities foolish alarms over the stability of our credit structure and considerable withdrawals of currency. In consequence, bankers in many other parts of the country in fear of such unreasoning demands of depositors have deemed it necessary to place their assets in such liquid form as to enable them to meet drains and runs. To do this they sell securities and restrict credit. The sale of securities demoralizes their price and jeopardizes other banks. The restriction on credit has grown greatly in the past few weeks. There are a multitude of complaints that farmers cannot secure loans for their livestock feeding or to carry their commodities until the markets improve. There are a multitude of complaints of business men that they cannot secure the usual credit to carry their operations on a normal basis and must discharge labor. There are complaints of manufacturers who use agricultural and other raw materials that they cannot secure credits beyond day to day needs with which to to lay in their customary seasonal supplies. The effect of this is to thrust back on the back of the farmer the load of carrying the nation's stocks. The whole cumulative effect is today to decrease prices of commodities and securities and to spread the relations of the debtor and the creditor."
-- Memoirs of Herbert Hoover, October 5, 1931 , pg. 87
""Hoover again rose to the occasion, trying
to arrive at some solution. Lending more
money would not solve the problem. The
vast, intricate entanglement of the foreign
debt situation was a time bomb waiting to
explode at any moment. Hoover’s proposal
was to call a complete "standstill" among all
banks everywhere, preventing anyone from
calling upon German or Central European
France still pressured for a $500 million
loan to Germany. Hoover refused to go
along with it. Mellon warned Hoover that
if the U.S. did not go along with the plan the
French intended to place all the blame on
the United States, and he warned that he
was playing into the hands of the French.
Mellon strongly urged Hoover to accept the
French proposal. Hoover lost his patience,
as he put it, and informed Mellon that his
"standstill" plan was being released to the
press at that very moment. When the news
came out, the London Conference was
forced to accept Hoover’s proposal because
the truth was at last coming out.
A group of New York bankers complained
to the White House and warned that they
would not comply with the standstill. They
demanded that Hoover loan money to Germany
so it could pay its debts which the
bankers held. As Hoover wrote: "My
nerves were perhaps overstrained when I
replied that, if they (bankers) did not accept
within twenty-four hours (his standstill proposal),
I would expose their banking conduct
to the American people." Needless to
say, the bankers realized Hoover’s determination
and his opinion that the taxpayer
should not pay for the banker’s problems,
which had been created by their eager solicitation
of private citizens for foreign securities,
and the bankers reluctantly backed
off. Indeed, the actions of the banks and the
Federal Reserve had bordered on the verge
of treason as they acted as willing participants
in what proved to be a game of musical
chairs with the unsound foreign
governmental debt instruments.
-- 1931, "The Greatest Bull Market In History", Martin Armstrong
- "A company named Ultramares Corp. of London had
lent Fred Stern & Co., Inc. of New York a
fairly sizable amount of money based upon
an independent audit prepared by the firm
of Touche, Niven & Co. Fred Stern & Co.
went into bankruptcy soon after the loan.
Ultramares brought a suit against Touche
charging negligence in preparing the audit.
The first round produced a verdict that Touche
was liable for an employee’s negligence.
But later a Court of Appeals in
Manhattan overturned the lower court’s
decision. The court ruled that a financial
statement which specifically figures as
"true" would be guilty of negligence. But
since the statement had concluded "in our
opinion" no testament was intended.
Hence accountants were relieved and
adopted the phrases "we believe" and "in
-- 1931, from "The Greatest Bull Market In History", Martin Armstrong
"The British... are suffering deeply from the shocks of the financial collapse on the
Continent. Their abandonment of the gold standard & of
payment of their external obligations has struck a blow
at the foundations of the world economy. The procession
of nations which followed Britain off the gold standard
has left the US & France as the only major countries still
holding to it without modification. The instability of currencies,
the now almost world-wide restrictions on currency
exchange, the rationing of imports to protect these
currencies & the default of bad debts, have cut ever
deeper into world trade."
-- Oct 6, 1931 - President Hoover in meeting at the White House with 32 members of Congress from both parties (link)
The market would have fallen much further
during the summer of 1933 if it were
not for new rules that the government imposed
upon the various exchanges. Time
magazine reported on the 7th of August:
"Banned from the pit forever were all dealings
in indemnities (options on grain futures
contracts generally regarded as pure
gambling)." The markets were also "forbidden"
to trade below the July low. Time
magazine reported upon the effects of this
measure on the 14th of August:
"The great exchanges of the U.S. last week
lacked natural stimulants. On the Chicago
Board of Trade the energy building grains,
limited not only to 4 cent and 3 cent daily
fluctuations, but also forbidden (by a rule
good until August 15) to fall below their
July 31 closing levels, floundered ineffectually...
From similar listlessness, begotten
partly by regulation, Manhattan’s Stock Exchange
was saved by the outside stimulants.
Following pricking of the speculative bubble
three weeks ago, the Senate’s busy
Prosecutor Ferdinand Pecora called on Exchange
President Whitney, told him speculation
must be curbed. Last week the
Exchange announced two new rules: 1) brokers
must report weekly to the Exchange all
that they know of the operations of pools
and syndicates; 2) traders with debit balances
of over $5,000 must maintain margins
equal to 30% of the debit balance; those
with debit balances less than $5,000 must
maintain a margin equal to 50% of the debit
balance. Calculated the ordinary way, the
proportion of a trader’s equity to the total
value of the stocks in his account, the margins
now required to 23% and 33%. Example:
if a man buys $1,500 worth of stock and
gives his broker $500, he is said to have put
up a 33% margin. However, his debit balance
is $1.000, of which $500 is 50% adequate
margin under the new Exchange
The market interest declined considerably.
Faced with limits, increased margins,
but worst of all investigation if you happened
to make money on the short side, the
only safe way to play the markets was from
the long side.
The Administration therefore intervened
or simply forbid the market to trade below
the July low. It was as simple as that. How
could they do such a thing? Well as impossible
or as outrageous as it might sound, that
is what happened. Nonetheless, they did it
and the market churned back and forth.
The traders themselves withdrew from the
market and liquidity shrunk. The rule was
rescinded on August 15 but other measures
were taken to support prices.
-- 1933, from "The Greatest Bull Market In History", Martin Armstrong
"SQUARE PEGS & ROUND PITS"
"Three weeks ago Chicago’s Board of
Trade instigated by Washington, set a temporary
level below which grain future prices
would not be allowed to sink. Last week
that artificial floor was removed. Prices
which had been bobbing along on the rule
like balloons wit hout lift ing power
promptly dropped the maximum amounts
permitted in one day’s trading. Great was
"Representative Jones of Texas and Senator
Smith of South Carolina promptly
swung inflationist thunderbolts about their
head again. Letters and telegrams poured
into Washington demanding that the Government
"No such action was taken. Next morning
the grain pits reopened and prices promptly
dropped and bounced. They mounted rapidly
and closed with substantial gains for the
day. Thereafter they swung up and down,
but neither sudden disaster nor abrupt
"Contributory cause that certainly helped
to steady the market was that, as the peg was
removed, Secretary Wallace began to talk
of the subsidizing of export of 50,000,000
bushels of wheat from the Pacific-Northwest,
and of raising the wheat processing tax
to pay for the subsidy. The Secretary of
Agriculture has power to fix processing
taxes at an amount equal to the difference
between current prices and the average
price 188 cents) for 1909-1914. The present
tax of 30 cents a bushel represented that
difference on June 15. For several weeks
wheat prices have been about 88 cents but
the tax continues. But the processing tax
can be increased only if wheat prices fall
below the June 15 level.
"The threat of subsidized exports may
have been partly intended to support the
market. It served also as a club over the
conference of wheat producing nations
which met again this week in London to try
to agree on crop restriction. What one nation
calls ‘subsidizing exports’ other nations
call ‘dumping.’ He proposed, however, to
dump wheat in the Orient thereby cutting
into the exports of Canada and Australia to
"Not according to the Golden Rule was
Secretary Wallace’s dumping threat for the
U.S. Not only has a law against foreigners
dumping in the U.S., but even when the
Secretary made his announcement the
Treasury Department was considering forbidding
imports of steel from Germany,
tennis shoes, electric light bulbs and calcium
carbide from Japan, stearic acid and
thumb tacks from Holland, rock salt from
Canada, woven wire fencing, sulphide paper
and binder twine from England, all on
the grounds of dumping."
-- Time magazine, August 28, 1933 edition
"Because the world is round, what is right
side up in the U.S. is upside down to China.
Because of the geography of economics,
gold miners like Chinese, are upside down
compared to other men. Most businessmen
worry about what price they will get for
their product, but in normal times gold miners
never worry, since an ounce of gold is
(normally) the ‘makings’ of $20.67, the
price they can get for their output never
varies a penny. If other prices go up, other
men are apt to profit, but for the gold miner
that means only higher costs (no bigger income)
and consequently smaller profits.
"Last March when Franklin Roosevelt
ruled that money was not gold, he broke the
old equation; $20.67 would no longer buy
an ounce of gold. He cheapened the dollar
to make prices go up to let businessmen
profit. But he did not break the equation so
far as gold miners were concerned. He
would not let them sell their gold to anyone
except the U.S. Government and the Government
would pay only $20.67. Gold miners
were out of luck - their costs mounted
but the price of their product remained the
-- Time magazine, September 11, 1933 edition
This situation had become intolerable and
grossly unfair to the gold mines. The costs
were rising rapidly. The mere cost of living
had jumped 9% since March of 1933.
Therefore, Roosevelt decided to allow the
gold mines to deliver their product to the
Federal Reserve and the Fed would sell
gold to foreign buyers at the world price.
This tended to export inflation to other nations,
such as France, that had remained on
the gold standard. At the same time, this
meant that gold was a commodity in that
respect and the proceeds were then credited
to the trade balance. The annual U.S.
production was about 2.5 million ounces so
this would add approximately $75 million to
this economic statistic which previously had
not been included.
However, along with that decision came a
harsh rule as well. It had been estimated
that $500 million in gold coin had not been
returned to the government as the edict had
demanded back in May. The Attorney
General was then armed with another new
law. Roosevelt could not declare it to be
illegal outright to own gold since that would
have been a flagrant violation of the Constitution.
So he took another approach
which the courts ruled permissible. It was
thereby ordered that all U.S. citizens file a
report to declare how much gold they held.
Failure to file the report carried a $10,000
fine or ten years in jail. So technically it was
not illegal to hoard the gold, it was just
illegal not to tell the Government that you
were holding it. This was merely one example
of the sumptuary laws which were being
implemented through the clever tactics of
switching a few words here and there to
circumvent the true liberties which had
been originally granted by the Constitution.
Although the free press in many cases was
hard at work trying to protect the rights of
the nation, it was a losing battle. Reprinted
here is an advertisement which the New
York Herald Tribune took out in the Wall
Street Journal. This was one of eight advertisements
in which the Tribune took upon
itself to stand up and fight back. The headline
"Time To Fight" was well taken.
The biggest crime perpetrated upon the nation
was that the people voted for a man who
had not revealed his true intentions of how
his "New Deal" was going to achieve its
-- 1933, from "The Greatest Bull Market In History", Martin Armstrong
"Dollars sank last week to the lowest level
since the U.S. quit the gold standard, 63
cents. Because President Roosevelt had
not yet seen fit to devalue the dollar, the
price is determined by supply and demand
in international exchange. And because
the U.S. has a favorable trade balance, demand
is normally greater than supply.
Whence the dollar flood has eaten away 35
cents of every 100 cents in each U.S. dollar
since last April. Continental money-changers,
canniest of whom are reputed to be ‘the
Greeks,’ delight in selling dollars short, but
bankers know that accounted for only a
fraction of the drop. Last week from the
British Commonwealth Relations Conference
in Toronto came confirmation of what
Wall Street has long suspected; that U.S.
citizens have exported their dollars by the
hundreds of millions.
"‘One of our problems,’ droned Viscount
Cecil of Chelwood, chairman of Britain’s
delegation, ‘is the flood of unwanted money
that is pouring into our banks. These funds,
deposited in the main by U.S. investors, are
subject to withdrawal at 24- hour notice and
are of little or no value, though it has not yet
been discovered how to get rid of them.’
"Standard Statistics Co., Inc., world’s largest
figure factory, estimated that
$1,000,000,000 had flown the Atlantic, the
bulk of it to London. France, whose tie to
gold is none too secure, has received little,
but Holland and Switzerland have been
drowned in dollars. Unlike exports of gold
which is strictly banned (for private citizens)
the flight from the dollar has been
quietly encouraged by Washington; it
pushed down the price without requiring
devaluation by Presidential decree."
-- Time magazine, September 25, 1933 edition
"U.S. STRIKES AT DOLLAR SHORTS"
"For the past two weeks there have been
growing indications that the federal government
is tightening its grip on the foreign
exchange control or official intervention
such as is practiced by the British Exchange
Equalization Fund but the market is convinced,
nevertheless, that hitherto uncontrolled
fluctuations in dollars exchange.
"Thus far it has taken the form of a tightening
of the control with regard to ‘swaps’
in the futures market. This is a blow aimed
directly at the foreign speculator who has
been maintaining an open short account in
dollars in the belief that the American unit
is headed for still lower levels in the world’s
"Up until present, the foreign speculator,
operating abroad has maintained his short
position by ‘swapping’ contracts which are
falling due for other contracts, say 90 days
away. For example, if dollars had been sold
for October 15 delivery, at the approach of
that date October 15 would be bought and
January 15 dollars sold against them. This
produces a temporary demand for spot dollar
exchange but the continued pressure on
the forward market is depressing influences
on the rate. The ‘swap’ really amounts to
borrowing of dollars for speculative purposes.
"Permission is being granted to execute
‘swaps’ when it is shown that they are based
on legitimate commercial needs. For example,
if a shipment of goods has been
delayed in delivery, it may be necessary to
extend the exchange position until the
goods are delivered and the exchange contract
settled. No difficulty is experienced in
obtaining permission for this type of transaction.
"The Continental exchange speculator,
however, has no such basis for his transactions,
which are financial rather than commercial,
and permission for financial swaps
is being refused. The effect of this procedure,
it is believed in the foreign exchange
market, will be to produce a growing outright
demand for dollars as the short contracts
mature, and which will not be offset
by sales of futures. Commercial supply of
dollar exchange is said to be very small."
-- Wall Street Journal, October 11, 1933
Here we find another example of what
would today be unthinkable. The foreign
exchange futures which are being referred
to here are cash forwards. If you sell a
January position you could find yourself
with no means to legally buy back your
position. So strange as it might sound, they
drove speculators out of the short positions.
Government just didn’t want any short bets
against them in any market. They sought to
have their cake along with a full belly and
free rent all at the same time. If it couldn’t
be achieved by a free market system, then
they would make up their own rules and
limit the freedoms of the market to their
The last four months of 1933 were marked
by numerous shocking issues. Many of the
steps taken to force the markets to yield to
the will of government are steps which will
one day soon be reimplemented. Today we
are all aware of the G-5 group of central
banks and the political consensus around
the world that promotes the manipulation
of foreign exchange to achieve economic
stability. The methods of the present are no
different from those attempted by the central
banks first in 1925, again in 1927 and
finally by Roosevelt in 1933. In the September
25, 1933 edition of Time magazine, we
find an interesting comment as to how the
stock market was viewed to be a hedge
against the currency inflation policies of
Roosevelt. This is very important because
I seriously doubt that anyone would view
the stock market today as a hedge against
inflation. Nevertheless, this issue was the
primary factor which led the stock market
into its rally which eventually peaked during
1937. Time magazine reported upon
this aspect as follows:
"Methods of hedging against inflation
within U.S. frontiers have become a favorite
coffee-&-cognac topic. Purchase of industrial
stocks is, of course, the most popular
hedge, but commodities and land have
been creeping up fast since the NRA threatened
profits with higher labor costs. Some
shrewd businessmen with little capital at
stake argue that the best thing is to go as
deep into debt as the banks (or friends) will
allow; eventually they will pay off with
cheaper dollars. Carl Snyder, economist
for the Federal Reserve Board, was asked
lately by a wealthy friend how he could
hedge against all possible contingencies including
deflation or stabilization so that he
would die as rich as he was at that moment.
‘One way,’ snapped Economist Snyder, ‘is
to shoot yourself.’"
The comment of economist Snyder in a
very realistic sense was quite true. The only
guarantee that one would die with essentially
his current assets in this situation was
to commit suicide for you never know what
tomorrow would bring.
There is no doubt that during the year
1933, the stock market gained significantly
on the prohibition issue which anticipated
that the country would turn "wet" as of January
1, 1934. But the ent ire issue of
Roosevelt’s currency inflation had a large
impact upon the performance of the market
The market began to rally finally from the
summer of 1933 lows on the perception of
a hedge against inflation. After a rally into
January 1934, the market fell back and consolidated
into a July low during 1934 once
again. From there, commodity prices began
to rally after the convertibility of gold
for U.S. citizens had been officially abandoned
in January 1934 and the effects of
inflation began to spread throughout the
world. Eventually, the inflation scenario
continued to drive the markets higher into
From March 1933 into 1937, stocks rose
largely upon the belief that inflation would
raise the price levels of commodities and
therefore earnings would rise as well.
Stocks were also viewed as a hedge against
inflation as we read in the September 25,
1933 edition of Time magazine. Therefore,
we find some continuity in the analysis
which took the position that stocks would
rise in the shadow of commodities. This
was largely created by the fact that much of
the economy was heavily commodity oriented.
High techs were not exactly the rage
of the times. Keep in mind that the automobile
was viewed to be a large consumer of
commodities. So we do find that there is
some logic to the commodity relationship
prior to World War II. But as the economy
developed over the next several decades,
the U.S. industrials and service oriented
business sectors began to play a much more
dominant role in the GNP of the United
States. Thus, the concept of commodity
relationships with the stock market has
been divided and almost forgotten for the
broad market as a whole.
After inflation spending continued yet
commodities and stocks declined from the
1937 high, that scenario of currency inflation
disappeared and Roosevelt’s theories
appeared to be a total failure.
-- 1933, from "The Greatest Bull Market In History", Martin Armstrong
"In 1920 and 1921 the foreign governments
and business were slow to realize that
our era of taxpayers’ largess was over; but
by 1922 they came to understand it, and the
whole problem took another complexion.
A boom began in foreign loans with the
offer by foreign countries of extravagant
interest to private lenders, from 5 to 8 per
cent per annum.
"These loans soon began to raise disturbing
questions as to their security, their reproductive
character, and the methods of
promotion. To serve any good purpose,
such loans had to be adequately secured
and should increase the productivity of the
country of their destination. Out of such
increases alone could they be repaid. Loans
used for military purposes, for balancing
budgets, and for nonproductive purposes
generally would be disastrous."
-- Memoirs of Herbert Hoover, U.S. President 1928-1932
- 1934 cartoon from the Chicago Tribune
The Great Depression was not invented
by the stock market. It was created by the
forces of unsound international finance and
sumptuary laws imposed upon the subjects
of various nations both in the United States
and in Europe. There is no doubt that the
fate of the stock market in the future will be
largely dictated by the swings in confidence
within the international monetary system.
In conclusion, the fundamental explanations
of the ups and downs of the stock
market and the world economy cannot be
simply drawn between an inference with
interest rate actions or with corporate earnings.
The impact of public confidence is by
far the most profound influence in both the
investment world as well as the world economy.
Capital flowing back and forth between nations
affords the closest relationship with the movement within the
stock market and this perhaps can be most
readily seen through the movement of foreign
exchange markets as well. The issues
are never purely domestic. No matter what
market one may look at in whatever nation
you may reside, the international influences
will always be a subtle guiding force behind
the more illuminated domestic issues of the
-- from "The Greatest Bull Market In History", Martin Armstrong
PBS - The Great Crash of 1929.
- "A common feature of all these earlier troubles [panics such as 1907 and 1914] was that having happened they were over. The worst was reasonably recognizable as such.
The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning.
Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost.
The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. (Not only were a recorded 12,894,650 shares sold on 24 October; precisely the same number were bought.) The bargains then suffered a ruinous fall.
Even the man who waited out all of October and all of November, who saw the volume of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months.
The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable."
-- From The Great Crash of 1929 by John Kenneth Galbraith
The Depression's impact on
Consumer spending on selected items, 1929-33
Value of shares on the NYSE
Historical Statistics of the United States, p. 319.
The Depression's impact on the
Banks in operation
Prime interest rate
Volume of stocks sold (NYSE)
Privately earned income
Personal and corporate savings
Historical Statistics of the United States, pp. 235, 263, 1001, and 1007.
Sources include Martin Armstrong and News from 1930, with grateful acknowledgement.