Dear Reader,
The news from December 1929 was not encouraging, but neither was it a portent of doom. The Christmas figures were in, and the men of Wall Street and The City had time to take in the news. 35-40% of the losses from the highs of September 1929 had been recovered, but then half of the recovery was lost. A mixed signal at best.
Herbert Hoover had only been president for ten months, as in those days, Inauguration Day was March 4. It is amazing that Black Thursday, October 24, Black Monday on the 28th, and Black Tuesday the 29th came only eight months into his presidency. Memory is interesting. Black Tuesday would become the phrase Americans remembered, even though the market had been bleeding for days. Maybe because looking back, it was a final indicator, the last day after a series of bad days.
Early in January, Hoover reported encouraging results from efforts to boost construction and infrastructure projects to combat unemployment. Preliminary figures from states, the federal government, railroads, and utilities suggested that 1930 construction would surpass 1929 levels. He cited a total of $4.7 billion in planned work so far, excluding private building and industrial projects still under survey. Steel companies were already seeing increased orders as a result. It looked like the storms from October were subsiding.
The London Naval Conference was upcoming and would be in session from January 21 to April 22, 1930. The US government sent negotiators to reach an accord with the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Italy, the French Republic, and the Empire of Japan. Two weeks before it was set to begin, President Hoover expressed national support and well-wishes for the American delegation departing for London. He emphasized that all five participating nations genuinely desired to end naval arms competition and to reduce global naval burdens, which also meant the expense, because fleets are not cheap. While acknowledging the difficulty of reaching an agreement among five different countries, Hoover stated that these challenges were not impossible to overcome. He stressed that any agreement must provide a sense of security and fairness to all nations involved, noting that peace cannot be sustained through advantage or prejudice. Hoover advised patience, as the technical complexities of the issue meant that even completing the conference in three or four months would be a significant achievement. He described the meeting as one of the most important international conferences in many years, with major implications for global peace. Finally, he urged the American public to support the process through patience, encouragement, and by refraining from criticism, to help maintain the atmosphere of goodwill surrounding the negotiations. Goodwill goes a long way in negotiations.
On January 10, 1930, with so much happening beneath the surface, it is almost sad to read Hoover's official remarks to the press at his regularly scheduled news conference:
It seems a sad thing to bring you all here from really a good day, but I haven't a thing on my mind. Our publicity news does not seem to break in so well with these conferences, so you will have to wait for another time. I have nothing today.
That ended his official remarks. He was similarly lacking in news on the 17th. Yet his eye was on London, and he remarked to the press on the 24th that “This is a famine day. I haven't had a single incident that would make news. All the news centers have moved over to London and I will have to leave it there for a while--plus up on the Hill, of course, always. So I can't tell you anything.” However, another momentous conference was concluding in the Hague. Yet the USA was only an indirect participant.
Charles Gates Dawes who served as vice president to President Calvin Coolidge was an energetic American banker turned statesman who helped secure loans for Britain and France during the Great War, and later served as a brigadier general in the American Expenditionary Force putting his financial sense to the service of his country by running General “Black Jack” Pershing’s General Purchasing Board handling military aquisitions in France. Years later, Dawes tackled the problem of postwar German reparations and their impact on the Weimar Republic. He set up a temporary plan to ease payments and stabilize the German economy despite the fact that the US was not a signatory of the Versailles Treaty. Dawes received the Nobel Peace Prize in 1925 for his efforts. Another brilliant American businessman, Owen Young, picked up where Dawes left off. He had set up RCA for General Electric back in 1919, and a decade later, he was on track to settle the problem of German reparations for good. Young collaborated with Dawes back in 1924, and now he was a driving force of the Hague Conferences on Reparations held in August 1929 and January 1930. The newer problem, however, was prefinancing.
Let me explain. Prefinancing was the practice by which Germany borrowed money—primarily from American banks—to make its reparations payments after the Great War. (Yes, you can see where the problem is about to come in.) Rather than funding these obligations through domestic revenue, meaning tax surpluses from Germans, Germany instead relied on short-term international loans. So American lenders funded Germany, Germany paid reparations to Britain and France, and those Allies used the same funds to repay their debts to the United States, because they owed America money from the war. Yes, this is an odd circle, but the idea was that German loans owed to Americans would be far more lenient than Britain and France demanding their pound of flesh. That was the idea. This circular system sort of shifted Germany's economic problems, making its compliance with the Dawes and Young Plans dependent on foreign credit and the American market. So with Wall Street’s difficulties in the fall of 1929, you could no longer count on the reliability of the American capital markets to finance the debt. So Young had to guide the process despite the new situation as he had been entrusted with the mission of settling the dispute between Germany and its creditors, the victorious powers France, Great Britain, Belgium, Italy, and Japan, during a meeting of the League of Nations, an organization Young’s country had not joined.
At the end of the conference in January 1930, a new plan was finalized for the Germans to have a reduced obligation of around 100 Reichsmarks, and payments lasting to 1988. Plenty of time, so they thought to pay it off. Still, as late as January 20, when they finalized the agreement, no one was expecting a Great Depression. Young was Time’s Man of the Year for 1929. They also set up the Bank for International Settlements (BIS) as part of the Young Plan to manage Germany’s reparations payments. It was designed to serve as a neutral, non-political institution based in Switzerland to act as the financial intermediary between Germany and the creditor governments, handling the transfer of funds from one party to the other. Keeping it all transactional and avoiding angry feelings from the French or obstructionism from the German central bankers.
President Hoover had been very attentive to the naval discussions in London where Charles Dawes was now serving his country as Ambassador to the Court of St. James’s, the official title of ambassadors to the UK, because St. James’s Palace, not Buckingham Palace, is the senior royal residence and the offical site of the monarch’s court. (It is named for Saint James the brother of Christ, not Saint James the brother of Saint John).
Interestingly, however, Hoover did not reference the events in the Hague, nor did the US Federal Reserve join the BIS, and would not become a shareholder until 1994. The day after the Hague conference ended, Hoover remarked at his January 21 press conference that:
The Department of Labor reports this morning that for the first time since the stock exchange crash the tide of employment is changed in the right direction--shows a very distinct increase in employment all over the country during the past 10 days. A report from the time of the crash down to about the 25th of December shows a continuous decrease in employment, and now the tide seems to have definitely turned the other way, and substantially so.
Other than that I will leave you to the many other sources of news.
In his final substantial news conference of January, he continued his upbeat mood:
The other item is the report of the Department of Labor for the week ending January 13, the details of which you can get from the Department some time during the day, but incidentally, it shows an increase of 3.3 percent in employment over the previous week, and that increase is current in practically every industry except one or two minor ones where there has been no increase, but it is generally distributed over the whole of the industrial world--some of them more than others--but the details of it you can get from the Department. It is at least an encouraging sign. And that is all I have this morning.
President Hoover, January 28, 1930
It seemed fine, just a minor slump. Hoover was not malicious; he simply did not foresee the problems coming. Either way, it was not to be a minor slump; the tide had not definitely turned, and no one foresaw how the plans of the London Conference to keep the peace between the naval powers and the Hague plan to fix the problems of Germany’s financial liability would crash—totalled, in large measure by the Smoot-Hawley Tariff Act still to come. In the German elections of September 1930, the National Socialist German Workers Party (the Nazis) lead by Adolf Hitler went from less than three to over eighteen percent of the vote, increasing their seats in the German national parliament, the Reichstag, from 12 to 107 seats out of a total of 577, opening a political hellmouth. But the history of that election, the tariffs, and the America election of November, when the Republicans lost the House, held the Senate by only one seat, and New York Governor Franklin Roosevelt was reelected in a landslide, is a story for another dispatch of Hellfighters.