Dear Friends
They will say, nobody saw it coming. Who could have predicted it... It
is worth noting that the 1932 stock market crash is deemed to be the
worst in the 20th century and not the one in 1929. By mid-1930, the
market was up 30% from the trough of the 1929 crash. However, by the
summer of 1932, the Dow reached a low of just 11% of its high in 1929,
or a loss of roughly 89%, trading more than 50% below the low it had
reached on October 29th, 1929. If one had $1000 on September 3rd 1929,
it would have gone down to $108 by July 8th, 1932 -- end of the worst
crash -- or an 89.2% loss. To recover from such a loss, one would have
to watch one's portfolio go up by 825%!
All this happened despite assurances from prominent government and
business leaders of-the-time that the worst was behind. Here is a news
headline that may sound familiar:
. September 1929: “There is no cause to worry. The high tide of
prosperity will continue.” - Andrew W Mellon, US Secretary of the
Treasury
After the stock market crash in October 1929, the Dow Jones Industrial
Average (DJIA) partially recovered in November-December 1929 and early
1930.
Reassuring headlines such as the following became increasingly common:
. May 1, 1930: “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!” –
US President Hoover
. August 29, 1930: “American labour may now look to the future with
confidence.” – James J Davis, US Secretary of Labour
. October 16, 1930: “Looking to the future I see in the further
acceleration of science continuous jobs for our workers. Science will
cure unemployment.” – Charles M Schwab.
On July 8th, 1932 the Dow reached its lowest level of the 20th century
and did not return to pre-1929 levels until 23rd November, 1954. The
full impact was not felt until the next year. By 1933, the Great
Depression was very real and it would take more than 22 years before
the market would regain what had been lost.
So severe was the impact of the 1929-1932 crash, that by spring of
1933, when President Roosevelt (FDR) took the oath of office,
unemployment in the US had risen from 8 to 15 million -- roughly 1/3rd
of the non-farm workforce -- and the GDP had decreased by more than
45% from $103.8 billion to $55.7 billion. Although the depression was
worldwide, no other country except Germany reached so high a
percentage of unemployment as the US. The poor were hit the hardest.
By 1932, New York's Harlem district had an unemployment rate of 50%
and property owned or managed by African Americans fell from 30% to 5%
in 1935. Farmers in the Midwest were doubly hit by economic downturns
and the Dust Bowl. Schools, with budgets shrinking, shortened both the
school day and the school year. The breadth and depth of the crisis
made it the Great Depression.
FDR, after assuming the presidency, promoted a wide variety of
federally funded programs aimed at restoring the American economy,
helping relieve the suffering of the unemployed, and reforming the
system so that such a severe crisis could never happen again. After
the crash in 1932:
1. The Securities and Exchange Commission (SEC) was established;
2. The US Congress passed the Glass-Steagall Act mandating a
separation between commercial banks, which take deposits and extend
loans, and investment banks, which underwrite, issue, and distribute
stocks, bonds and other securities;
3. The Federal Deposit Insurance Corporation (FDIC) was established to
insure individual bank accounts for up to $100,000; and
4. Works Projects Administration (WPA), the largest New Deal agency,
was set up employing millions to carry out public works projects.
However, while FDR's New Deal did help restore the GDP to its 1929
level and did introduce basic banking and welfare reforms, FDR refused
to run up the government deficits that ending the depression required.
Only when the federal government imposed rationing, recruited 6
million defence workers (including women and African Americans),
drafted 6 million soldiers, and ran massive deficits to fight World
War II did the Great Depression finally end.
The extent of the economic devastation of the 1930s went far beyond
the imagination of anyone in the financial markets or governments
across the world.
[ENDS]
We welcome your thoughts, observations and views. To reflect further
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All the best
DK Matai
Chairman and Founder:
mi2g.net, ATCA, The Philanthropia, HQR, @G140
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