In the last analysis it seems that if a man can develop investment sense he can build an estate even tho his savings from his earnings are small. It takes study and hard work like everything else but the fact remains that money
can
be wisely invested and
can
be made to work for you. The reward is well worth trying for but the dangers and pitfalls along the road are many.
SEPTEMBER 28, 1936
Today France went off the gold standard, put an embargo on gold and prepared to devalue the franc. She is quickly followed by Switzerland and Holland, the last remaining gold countries. The entire world is now off the gold standard. In order to prevent an international competitive cutting of the monetary standards the U.S. and England have agreed to support the franc until the change is completed. It is hoped this will pave the way to an international agreement as to the value of each currency and ultimately a return to the gold standard.
England started the movement to leave gold back in 1918. She returned to gold in 1921 and then abandoned it again in 1925. By manipulating her currency she attracted foreign trade and returned to prosperity long before other countries. But other nations found they could do the same thing, so one by one each country did the same thing for protection and profit. The U.S. abandoned gold in 1933 and our dollar is 59¢ its former value. When a country devalues, its merchandise costs less to a foreign country and hence it exports more. This advantage holds only so long as the other country does not devalue to a greater degree. Manipulation of currency and building of high tariff walls have played havoc with all foreign trade and have prolonged the crisis. France persistently refused to devalue because her people had had bitter experiences with inflation. But devaluation by other countries killed her foreign trade and while other countries were on the upgrade during the past three years France kept getting worse and worse. Within the past year France had an internal revolution and the Socialist party under Blum is now in power. He also refused to devalue but during past few months the French people hoarded their gold and sent it to U.S. and England for safety and investment. The steady out-flow of gold finally made franc devaluation inevitable.
I thought such a thing would bring a stock market crash in U.S. because it would be logical for the French to sell their U.S. stocks and take the gold home because of its increased value. As usual, however, the stock market did not follow a logical course and went up on the news instead of down. The explanation was that investors felt the way was now paved for an international agreement to return to gold and this in turn would lead to greater export trade and prosperity.
OCTOBER 13, 1936
It is exactly five years ago today since the Youngstown banks closed their doors. Fairly steady has been the recovery for almost two years now since March 1935. Mills are working over 70%; stores are busy, real estate is showing activity and it is almost impossible to find a vacant house.
In spite of all these signs of returned prosperity the law profession lags. It is a curious anomaly. Everybody seems to have money, to buy clothes, cars, etc. yet during the past 3 months I took in hardly enough to pay expenses. It would seem that after recovery people spend their first earnings to buy clothes, cars, furniture and pay off debts. After they do this and accumulate a surplus they will start buying real estate and there will be some worthwhile business for the lawyer. It is a very trying period for our profession and I heartily wish it were over.
The stock market continues slowly up without a bad break since March 1935. Sheet & Tube sells at 86. Seems too high because it is back on its preferred dividends and of course pays nothing on common. It makes me sick to think that the chance to buy stocks and real estate at depression prices has passed on without my being able to participate. It may never come again in my life-time to such a degree.
The presidential campaign seems to be getting a slow start but from present indications it will be a very close race.
OCTOBER 26, 1936
The National political campaign draws to a close. It seems to be a very close issue between Alfred M. Landon and Franklin D. Roosevelt with the betting odds 3 to 1 in favor of Roosevelt. The
Literary Digest
poll favors Landon. In Mahoning County the
Vindicator
poll favors Roosevelt. The campaign has been very bitter and unfortunately racial issues have come in the picture. President Roosevelt appointed a number of Jews to prominent positions and because of this many subversive groups have been distributing scurrilous anti-Semitic literature. I am in favor of Landon because of the basic issues involved but have been greatly disturbed by the anti-Semitic features of the campaign.
The business picture continues bright and the stock market holds its own.
OCTOBER 29, 1936
Today is the 7th anniversary of the stock market crash in 1929. On that day 16 million shares changed hands—stocks dropped 20 or 30 points and the country became panic stricken. Today the market was firm—business back to normal—people optimistic—and prospects that the next few years will be good years.
The political campaign comes to a close with the result apparently close although betting is 2 1/2 to 1 on Roosevelt. It has been a bitter campaign—full of personalities—racial issues, etc. I am glad it is over. Somehow the last few years seem to have been hectic years—lots of discussion but no business. I long for more quiet—more attention to business and less public discussions. I think that with the return of more normal business conditions many people will feel this way.
NOVEMBER 6, 1936
The National Election resulted in an unprecedented landslide for Franklin D. Roosevelt. His opponent Landon received only 8 electoral votes. Likewise both Houses of Congress are more predominantly Democratic than ever before. By a popular vote of 2 against 1, the people of the U.S. decidedly determined to follow Roosevelt and the New Deal. Unless Roosevelt becomes suddenly conservative, it seems to me we are heading for inflation. Also in state and local matters the Democrats are in charge of almost all offices. As usual the landslide swept into office some undesirable candidates along with the rest of the ticket.
The streets are crowded with people—many new 1937 automobiles are already on the road—everywhere are signs of optimism. It is reflected by a rising stock market and rising prices. In the face of all this the legal profession lags behind. It is very trying.
CHAPTER 6
DECEMBER 4, 1936-SEPTEMBER 11, 1939
“Much labor trouble lately and a great deal of violence.”
EDITOR’S NOTE
“We can formally and officially announce that the depression of 1929 has ended,” declares Roth on January 2, 1937. Retail stores in downtown Youngstown teemed with shoppers buying new clothes and home furnishings. Gleaming new autos crowded the roads. Youngstown steel mills operated at 80 percent capacity. The town’s commercial real estate rental market was strong, and many personal and auto finance companies had sprung up again, poised to approve new loans for consumers. Plus, the stock market was bullish, enjoying a steady rise since March 1935. Even Roth’s diary writing tapered off after May 1937. When he picked it up again in October, however, he described a very different picture: “I have made no entry for several months because business seemed to be normal,” penned Roth on October 12, 1937. “About six weeks ago, however, the stock market had a bad break and since then it has gone steadily downward with hardly a pause.”
Dubbed the “Roosevelt Recession” in the months to come, the thirteen-month period between May 1937 and June 1938 proved to be a rough ride not just for Roth and the American people but for private industry, banks, and the White House as well. Historians and economists offer various theories as to the cause of this episode of severe slowdown after the steady rise in America’s economic recovery. Certainly, the simultaneous combination of unforeseen forces that fostered the new crisis quickly opened America’s old wounds of 1929 that had just barely started to heal.
In January 1936 Congress finally awarded three million World War I vets (including Roth) their veterans’ bonuses. The average individual sum was formidable. With amounts exceeding 30 percent of the mean household income for a man of this age group, the vets quickly cashed in their long-awaited bonuses (46 percent would be redeemed by mid-June 1936). The payout represented nearly 1 percent of the annual gross national product, and it substantially stimulated the economy, if temporarily, in 1936. Manufacturers were only too happy to step up production and hire more workers to meet demand. Consumer spending that year (thanks to veterans’ bonuses, high employment, and an increase in average wages) gave the appearance of the prosperity of the Roaring Twenties.
Yet 1937 turned out very differently. President Roosevelt needed to raise taxes. Facing a $3.6 billion deficit, Roosevelt needed revenue to pay for the veterans’ bonuses and offset the loss of proceeds from the AAA’s agricultural processing tax that the 1936 Supreme Court had ruled unconstitutional. Although less than 5 percent of the population would actually end up paying federal income taxes in the 1930s, the perceived tax plan slowed personal spending. In addition, payrolls decreased due to a tax levied to finance the Social Security Act of 1935, one of the major parts of Roosevelt’s Second New Deal. Two billion dollars was raised from the earnings of American workers in 1937. But families’ spending became more cautious as they faced a smaller paycheck week after week.
The consequence of this sudden expansion and contraction resulted in an all too familiar pattern: By the end of 1938 unemployment had leaped to nearly 20 percent (compared to 14 percent the year prior). Manufacturers had to cut production levels, unload inventories, and let go workers when demand slowed. As Americans once again lost their means to maintain the consumption of goods at their 1936 levels, the economy plunged further. The notion that America was entering another “depression” crystallized in the collective mind-set on “Black Tuesday,” October 19, 1937. That day the stock market traded the biggest volume (7.2 million shares) since 1933, and the slump continued into 1938. By May 1938 the Federal Reserve’s adjusted Index of Industrial Production had lost almost two-thirds of the gains it had made since 1933.
Many economists and historians also blame an act of the Federal Reserve Board for hurting the recovery. By late 1935 commercial banks were holding onto $5 billion in excess reserves (compared to $2.76 billion in January 1934) as large amounts of European gold poured into America, due to the escalating turmoil abroad. Banks preferred to keep the gold: The interest rates on government securities were too low to convert this surplus into bonds, plus few loan applications had good enough credit histories to accept. But the Federal Reserve Board wanted to “correct” this bank excess. They feared the reserves would ignite another overspeculative “inflationary boom.” Under the 1935 Banking Act, the Federal Reserve Board doubled the necessary reserve ratio for commercial banks. The unanticipated consequence of this new requirement was dramatic and nearly instantaneous. Banks were forced to liquidate their investments, withdraw from central reserve-city banks (which also needed to meet this new reserve level), and further tighten their lending.
President Roosevelt’s sudden shift in spending policy also undoubtedly contributed to the downturn. The president aimed to reduce the federal deficit upon reelection in 1936. The administration drastically and swiftly cut federal spending on his various job stimulus projects such as the WPA. The federal deficit would actually drop below $1 billion in 1937, but at a dismal cost: By September 1937 1.8 million federal jobs were wiped out. Reminiscent of 1932, Roth notes that one-quarter of the nearby Cleveland population was back on relief by April 1938.
DECEMBER 4, 1936
Since the election, business has continued to boom with the retail trade looking for the biggest Christmas since 1929. Several stores report difficulty in getting delivery of merchandise—prices are rising and threaten to increase more—everywhere are signs of the coming of a boom or collapse similar to 1929 and perhaps even worse. The 1937 automobiles came out and record sales are reported.
In the midst of all these signs of prosperity the professional men seem to be left out. Business is a little better but far below normal. Collections are bad—people seem to be buying heavily clothing—furniture—cars—amusements—but have nothing for the lawyer or doctor.
The stock market has not advanced much during the past month but in general has maintained its level.
The European situation grows worse and there is a daily danger of war.
Real estate rentals have risen rapidly and there is difficulty in finding a vacant house or apartment. New building has not gotten into full swing.