Is “Black Tuesday” (Tuesday, October 29, 1929) hovering? Are we a few weeks or months away from the economic cliff?
The “roaring twenties,” seemingly endless increases in stock prices, three consecutive Republican presidents (Harding, Coolidge and Hoover), the flu pandemic was gone, a farm depression was concerning; however, the nation appeared to be booming.
On March 4, 1929, at his presidential inauguration, Herbert Hoover stated, “I have no fears for the future of our country. It is bright with hope.” Most Americans shared his optimism. They believed that the prosperity of the 1920s would continue, and that the country was moving closer to a land of abundance for all. Little could Hoover imagine that barely a year into his presidency, shantytowns known as “Homerville’s” would emerge on the fringes of most major cities, newspapers covering the homeless would be called “Hoover blankets,” and pants pockets, turned inside-out to show their emptiness, would become “Hoover flags.”
The stock market allowed anyone to buy stocks “on margin,” borrowing 90% of the cost of the stock from the broker, if the stock lost 10% of its value, the broker could sell the stock, the investor losing everything, for investors, seemed unlikely, the market only moved in one direction, up!
On Thursday, October 24th the market stumbled, Hoover delivered a radio address on Friday in which he assured the American people, “The fundamental business of the country . . . is on a sound and prosperous basis.” On Tuesday the market crashed, by December the market had lost 50% of its value. President Hoover had only been in office for eight months and his response was far from adequate,
President Hoover was unprepared for the scope of the depression crisis, and his limited response did not begin to help the millions of Americans in need. The steps he took were very much in keeping with his philosophy of limited government; a philosophy that many had shared with him … Hoover was stubborn in his refusal to give “handouts,” as he saw direct government aid. He called for a spirit of volunteerism among America’s businesses, asking them to keep workers employed, and he exhorted the American people to tighten their belts and make do in the spirit of “rugged individualism.”
Read an excellent analysis of the origins Great Depression here.
Does it seem a little familiar?
In the last hundred days the stock market has increased more than in any other hundred days since 1933. The market has reached unheard of levels. While the market pushes higher and higher the pandemic has shattered the economy with unemployment levels approaching Great Depression levels.
The Congress and the President immediately responded with the infusion of dollars, the CARES Act: $600 week unemployment, $1200 payments to all Americans earning under $75,000, loans used to retain workers that can be forgiven to virtually any business.
In May the House passed the HEROES Act, a $3 trillion infusion, dollars for schools, for cities and states, continuing unemployment insurance (the CARES Act expired at the end of July), See details of HEROES bill here.
The Senate refused to negotiate with the House, eventually Mark Meadows, the President’s chief of staff and a former House member led the negotiations on the Republican side. At least 20 Republican Senators are opposed to any additional aid.
The negotiations are stalled, the President issued “questionable” (are they constitutional?) executive orders, one of which suspending payroll taxes, the funds used to fund Social Security and Medicare.
The response to the pandemic: quarantine, social distancing, wearing masks, contact tracing shut down local economies and is resisted in some states.
Without the HEROES bill state and local governments, schools as well as tens of millions of unemployed Americans are desperate.
The politics of the November 3rd election determine every decision: regardless of the consequences.
Are we seeing the repeat of the Hoover approach to the stock market crash?
Federal law prohibits states from declaring bankruptcy. State and local governments, without federal dollars will have to raise taxes and/or cut services, aka, laying off state and local workers.
The New York State budget passed on April 1st, with a caveat, if revenues lagged the state could cut the budget midyear, and, the governor has mentioned a potential 20% cut in the budget.
The New York City budget passed in the waning days of June, was “funded” by borrowing from itself, using dollars in the “rainy day” funds including $1B in unspecified savings from labor agreements. Mayor de Blasio threatened 22,000 layoffs unless the unions agreed to 1B in labor savings, and, without the “rainy day” funds next year’s budget will be far worse.
Progressives, the Democratic Socialists of America, the Working Families Party have all called for “taxing the billionaires,” the cries are popular. The bills introduced into the legislatures would tax unrealized profits from investments, called ad valorem taxes, taxes specifically prohibited by the NYS Constitution.
Intangible personal property shall not be taxed ad valorem nor shall any excise tax be levied solely because of the ownership or possession thereof, except that the income therefrom may be taken into consideration in computing any excise tax measured by income generally. Undistributed profits shall not be taxed. (NYS Constitution, Article XVI (3))
Mayor de Blasio is moving forward on his threat to layoff 22,000 city employees by October. He has asked every city department to identify specific job titles and prepare layoff lists.
The New York State Comptroller released a report that paints a bleak picture of city and state finances.
Here are some of the highlights, or really lowlights, of what the crisis has done to the state’s economic engine:
- More than 944,000 jobs were lost in March and April. That’s the largest job loss since the Great Depression nearly a century ago. Unemployment has spiked from 3.4 percent in February to 20.4 percent in June. It has never been higher in 44 years.
- New York City has projected a revenue loss of $9.6 billion from the pandemic. It has taken $11.4 billion from different resources, including $4.1 billion from reserves and $2.6 billion from the Retireee Health Benefits Trust.
- The proposed budget is resting heavily on non-recurring actions to balance its spending and close a gap of $4.2 billion.
“The social, economic and budgetary impacts of the pandemic have been unprecedented on New York City, the state and the nation,” the Comptroller said. “Without additional federal budget relief, the city will need to make hard choices to ensure budget balance in the current fiscal year and to close next year’s budget gap.”
The unions are reacting cautiously, supporting asking the legislature to allow the city to borrow, frowned upon by governor, and the unions continue to “discuss” savings with the city.
The economy is precarious.
Investors could seek other havens for their dollars and flee the market sending prices into a downward spiral; the continuing spread of COVID, a delayed vaccine, an international “incident,” could push world economies into an abyss.
Sense could prevail and the White House could agree to an iteration of the HEROES bill, or not.
As the days tick by, closer and closer to the September 10th school opening New York continues to bleed dollars fighting the pandemic the specter of public employee layoffs looms.
How can schools re-open in a highly controversial hybrid model and, at the same time, the city plan for layoffs?
Not uplifting, perhaps fitting, Leonard Cohen, “You Want It Darker,” https://www.youtube.com/watch?v=v0nmHymgM7Y