From the weekly close peak of 380.33 on Aug 26, 1929, the Dow had dropped to 228.73 by Nov 18, 1929, or nearly 40%. By April 21, 1930, it had recovered to 293.43, an increase of almost 30%. After that, it collapsed all the way to 41.63 before bottoming in Jul 1932.
These two articles were pulled from the New York Times in the 1930s. The first one, published on Feb 19, 1930, is flush with signs of improving jobs data. Julius Barnes, chairman of the National Business Survey Conference, proclaimed that “the danger of a long depression [is] apparently ‘fairly over.’” Hindsight is 20/20 and Barnes” foresight was anything but. But given surging business confidence, a rallying stock market, and a big uptick in public works and utilities contracts all pointed upwards.
The second article, from April 1930, the peak of the short lived rally, quotes Benjamin Anderson of Chemical Bank, an economist that is skeptical of the recent recovery. He claims that it is only temporary relief made possible by excessive government spending and cheap money. One must wonder whether the NY Times should rerun this article with some of his more powerful quotes highlighted …
“It is definitely undesirable that we should employ this costly method of buying temporary prosperity again. The world’s business is not a moribund invalid that needs continuous galvanizing by an artificial stimulant.”
“Cheap money will not induce manufacturers and merchants to increase their borrowings in an unsatisfactory business situation. But if merchants and manufacturers will not use cheap money, speculators will. They will use cheap money in buying stocks for the prospect of capital appreciation.”
“Cheap money is a stimulant. It is also an intoxicant. If the dose is large enough, a very substantial temporary effect can be brought about. But headaches follow.”
He goes on to cite figures that show just how many loans are backed by securities and essentially claims that cheap bank financing is holding the stock market up. I won’t restate the obvious cliche here, but those that don’t remember history are doomed to repeat it.
