The Great Depression, Part Two

On the political front of the 1920s, Warren Harding died after only about two years in office and was replaced by Vice President Calvin Coolidge, who came to be known to the public as “Silent Cal.” Coolidge was very pro-business, having uttered those famous words, “The chief business of the American people is business.” He was not a showman nor was he terribly photogenic; often appearing in photos looking as if he’d just swallowed a big dose of Castor oil. To a good number of historians, he is known, on the positive side, for not being too self obsessed, or thin-skinned. Once, when asked if he had read a particular news article on one of his policies, Coolidge said, “I started to read it, but it was against me, so I put it down.” In later news articles, this Coolidge philosophy came to be known as, “If you don’t like it, don’t read it!” Coolidge became known for his short answers to questions posed by the Press and his less than verbose personal nature, and in one oft repeated story, once at a dinner gathering, a woman guest told Coolidge that she had a bet with someone that she could get him to utter more than two words; Coolidge looked over and said, “You lose.” He was not an activist president, but as one biographer said, he was what the country wanted in those times, and he did clean up the scandals left from Harding’s watch, known to history as “The Teapot Dome.” He won election in his own right in 1924, winning with a substantial percentage of both the popular vote, as well as the Electoral College. He suffered a terrible tragedy while in office, as one of his sons died of blood poisoning. The country suffered along with it’s bereaved president. He could have undoubtedly run again in 1928 and won, but Coolidge was tired. Reporters were gathered and the president, in typical fashion, made a right to the point one line announcement that he would not run for president in 1928. He then walked away. His less than dynamic personality was always good for a laugh, and even a few years later when he died, the dour Yankee took a hit; one reporter, when told, “Calvin Coolidge is dead,” replied, “How can you tell?”

In 1920, Democrats, including casual friend, Franklin D. Roosevelt, tried to persuade Herbert Hoover to run for president. Only then did Hoover acknowledge that he was a Republican. He joined the Republican nominating process late in the game, and lost out to the then popular Harding. In 1928, Hoover was one of the most admired men in the world and little stood in his way to receiving the Republican nomination. In the general election, Hoover easily defeated Democrat Al Smith and was sworn in as president in March 1929. (The swearing in ceremony wasn’t moved to the January 20th date, with which we’re familiar, until a few years later, in large part, due to The Depression, and the long period between the early November election and the March swearing in. It left a considerable time gap, where a president leaving office was truly a lame duck, as the country awaited the new administration and policies of the recently elected president. It was decided to narrow the time gap between the election and the assumption of office, and the January 20th date was selected.)

One of the other problems with the economic boom of the 1920s was that it was uneven. A large percentage of income went to wealthy people and Coolidge ensured that even more money would go to the wealthy by pushing tax cuts for people making more than a million dollars. About two-thirds of the Coolidge tax cuts went to wealthy people!!! (Again, just a reminder, while we still consider a million dollars a great deal of money, it was a HUGE sum in those times.) Productivity made tremendous gains during the 1920s, but workers saw only about a 7 or 8 percent gain in wages, while business profits soared by 60 to 65 percent!!! By around the time of the “Crash,” the top 1/10th of 1% of the population earned more than the entire bottom 42% of the population!!! A tremendous concentration of wealth!!! If such statistics sound familiar to you, they should, as the situation is similar in today's America, and it should scare the absolute hell out of you!

All Americans wanted the new appliances and automobiles, but eventually, modest income folks had spent themselves out, including with credit accounts. About the time that Hoover was taking the oath of office in March 1929, the economy was going into a stall. The stock market continued to soar, but underneath the economy was on shaky ground. Overextended consumers had to cut back on purchases just to be able to afford the payments on the items they had bought on credit. With fewer goods being sold, business inventories began to grow. At first, the stock market took virtually no notice of the general economic situation, as the frenzy to buy what were quickly becoming overvalued stocks continued, with the expectation that these stocks could be sold in the near future at a big profit. By September of 1929 the stock market began to see far less advances in prices, as some folks obviously felt that the surge in prices could not be maintained indefinitely into the future. By October, the stock market experienced a tremendous shift in sentiment, and the selling started. The problem was, with so many stocks bought “on margin;” that is, credit, once your stock’s price reached a certain level, a call came from your broker that you needed to put up more money, or the stock would have to be sold. Needless to say, not many people put up the money, thus more stocks were dumped onto the already reeling market. If they did put up more money, the plunge in prices meant that they didn’t put up enough money to cover the losses, and those stocks were also put up for sale. It was like an avalanche!!! The stock market ticker could NOT keep up with all of the selling, which only added to the confusion and panic. (There’s nothing like the lack of information to add to unease or panic. Just recall 9/11 for a moment. The country waited for another shoe to drop, which fortunately didn’t happen, but the unease of NOT having information and not knowing what might happen was terrifying to us.)

Okay, so what does all of this mean? Well, if you bought a thousand dollars worth of stock on margin, you needed only one hundred dollars down. (We’re not including any transaction fees, just to keep this all as simple as possible.) So, you now had stock worth a thousand bucks, but only a hundred dollars actually invested, which was your equity in the stock. Typically, your broker “loaned” you the other nine hundred dollars and held the stock certificate as collateral to secure the “loan.” Everything was fine as long as the price of your stock didn’t decline enough to threaten to wipe out your equity, but if that happened, your broker would call and tell you that you needed to pay him more money (to gain equity). Keep in mind, he’s on the hook for the other $900. If you did put up let’s say another $100, the plunge in stock prices ate up that equity in no time. The broker, in an effort to get his money back, then tried to sell the stock. Again, more problems; this just dumped more shares onto a market that was already overwhelmed by selling. I once asked some friends of mine a question to give them a little economics lesson. (Hey, I’m not called “Pontificating Randy” for nuthin’! Of course, I’ve also been called some other names, but I’ll leave those names to your imagination, or maybe you’ve already called me some of those names if you’ve read my articles!) My question was and is to you also: What do you have to have to sell anything? I’ll have the answer, right after a word from our sponsor. No wait! I mean I’ll have the answer in Part Three!!! See ya! I think I see some clouds of smoke rising from the tops of some noggins.

WORD HISTORY:
Lard-The ultimate origins of this word are uncertain. English borrowed the word in the 1300s from French "larde," which meant "pork, bacon. This came from Latin "lardum" (lard, bacon), and Latin may well have borrowed it from Greek "larinos" ("fat"). In English it means "the fat rendered and congealed from a swine."