Futures prices were well above spot prices for most commodities during most of the Great Depression; evidently the spectacular declines in agricultural prices caught many people by surprise. Based on the historical correlations between commodity prices and consumer prices, commodity markets anticipated stable consumer prices during the first year of the Great Depression. The dramatic drop in nominal Treasury bill yields, thus, should be read as a drop in ex ante real rates. Later in the Great Depression, markets anticipated deflation, but not as severe as actually occurred.
I'd suggest reading the whole link, but some interesting items below:
http://www.futurecasts.com/Depression_descent-end-'30.html
By the beginning of April, 1930, the rise in stock prices had once again left dividend yields, by themselves, well below attractive investment levels.
After hitting its recovery high on April 10, 1930, the market was buffeted by a continuous flow of disappointing first quarter earnings reports that looked especially poor when compared with the booming first quarter of 1929. Railroad car loadings broke lower. The market slipped lower. However, it took something spectacular to break the nearly unreasoning optimism of the stock markets.
Copper had been pegged at 18 cents per pound by an international cartel. It had been as high as 24 cents per pound in April, 1929. However, overwhelming stockpiles and sales from secondary sources at lower prices broke the dam. The price dropped to 12 1/2 cents in the beginning of May.
?
When steel production also slipped - falling just below 80% of capacity - the stock market broke wide open. Selling of agricultural futures then broke the dam erected by the Farm Board, and grain prices sunk like stones, taking the stock market with them. The Big Board quickly lost 75% of the ground gained since the beginning of the year. Wheat prices tumbled below $1 per bushel. This breached the "dollar line," which had become a traditional bear market signal. Steel prices dropped to the lowest level since 1922 - down about 7% - about in line with the general decline in wholesale prices. (There is still no evidence here to support the left wing myth that steel prices were "sticky in a downwards direction.")
?
"The New Era isn't here yet," commented Mr. Simmons, Pres. of the NYSE.
?
The exodus of speculative enthusiasm from the stock market was accompanied by a precipitous decline in broker's loans. Improved spring retail trade and the reduction of the Federal Reserve Bank discount rate to 3% at the beginning of May could not overcome the plethora of depressing factors. Bull optimists could now point to nothing closer than the fall trade period as a driving force for future recovery. (In the days before air conditioning, economic slowdowns were normal for the summer months.)
The trade war:
A new Canadian tariff was estimated as costing the U.S. $225 million in lost export business, and France threatened retaliatory tariffs if the U.S. passed the much-debated Smoot-Hawley Tariff bill. After all, the tariffs of the U.S. - the world's principal creditor nation - were already the second highest in the world - trailing only those of Spain.
?
The issue was still in doubt - especially in the Senate and with respect to whether Pres. Hoover would sign the bill. In one of the most glorious moments for the profession, 1,028 economists put their names on a petition to Hoover in opposition to the tariff bill. The petition was published in the N.Y. Times on May 4. However, the usual business and labor constituents were seeking protection from foreign competition, and many in Congress were anxious to oblige.
Gold flows grew in importance. Lowered prices and decreased trade put heavier stress on financial resources heavily encumbered not just with ordinary trade and investment debts but also with WW I financial obligations. France and the U.S. gained gold and hard currency reserves. They were "winning" the trade war - but losing the world.
?
England, Germany and the Central European nations were heavy losers. The French economy started to slip in May.
?
Silver, a vital monetary metal, crashed in May, when the Chinese Reserve Bank was forced to cease purchases. This cut deeply into Indian and Chinese financial strength as well as that of several Latin American nations that used silver to denominate their currencies, and drastically reduced their imports. The English and U.S. textile industries were especially hard hit, as was the price of cotton and other fibers. Many other industries suffered lesser but still significant losses.
Residential construction was cut almost in half.
Unemployment rose sharply in May - reaching the worst levels in 11 years. Sharp wage cuts were reported, especially for nonunion workers. Retail trade for June fell 10% under 1929 figures with many sharp cuts in prices. The bankruptcy rate in June surged about 15% above the rate in May.
?
Commodity prices were now sinking like stones - at something more than 2 1/4% per month - with a big decline in April. World money rates had been cut in half since October, 1929, and private lending rates had declined even faster.
?
On June 9, the stock market suffered its sharpest loss of the year as the decline resumed. The next day, short covering and bargain hunters pushed a market recovery of practically all the previous day's loss. But U.S. Steel production declined to 71% and its unfilled orders report showed a dramatic decline. On June 11 an even bigger market drop wasn't stemmed until financial leaders stepped in with big orders for key stocks.
?
This typical whipsawing was killing the margin speculators - both long and short - and was chasing many out of the market. The investment trusts were reportedly now heavily committed to the stock market. Steel dropped to 69% of capacity.
The Smoot-Hawley Tariff passed the Senate on a narrow 44-to-42 vote on June 13, supported by almost all the Republicans. Europe angrily canceled large orders for U.S. copper and non-ferrous metals (lead, zinc). All commodity prices began to decline again. A soon to be familiar song was heard.
?
Rye lowest in 30 years, oats lowest since 1922, exports and imports smallest since 1924. All business indices dropping. No hope for early recovery.
?
Crash on June 16 as the House passed the Smoot-Hawley Tariff, again supported by almost all the Republicans. Pres. Hoover wasted no time. Ignoring the pleas from a vast host of the nation's economists, he signed the Smoot-Hawley Tariff on June 17, 1930. Expectations that political leaders would eventually prove capable of handling the international crisis were now shattered by clear proof that they could not even avoid making matters much wors
I'd suggest reading the whole link, but some interesting items below:
http://www.futurecasts.com/Depression_descent-end-'30.html
By the beginning of April, 1930, the rise in stock prices had once again left dividend yields, by themselves, well below attractive investment levels.
After hitting its recovery high on April 10, 1930, the market was buffeted by a continuous flow of disappointing first quarter earnings reports that looked especially poor when compared with the booming first quarter of 1929. Railroad car loadings broke lower. The market slipped lower. However, it took something spectacular to break the nearly unreasoning optimism of the stock markets.
Copper had been pegged at 18 cents per pound by an international cartel. It had been as high as 24 cents per pound in April, 1929. However, overwhelming stockpiles and sales from secondary sources at lower prices broke the dam. The price dropped to 12 1/2 cents in the beginning of May.
?
When steel production also slipped - falling just below 80% of capacity - the stock market broke wide open. Selling of agricultural futures then broke the dam erected by the Farm Board, and grain prices sunk like stones, taking the stock market with them. The Big Board quickly lost 75% of the ground gained since the beginning of the year. Wheat prices tumbled below $1 per bushel. This breached the "dollar line," which had become a traditional bear market signal. Steel prices dropped to the lowest level since 1922 - down about 7% - about in line with the general decline in wholesale prices. (There is still no evidence here to support the left wing myth that steel prices were "sticky in a downwards direction.")
?
"The New Era isn't here yet," commented Mr. Simmons, Pres. of the NYSE.
?
The exodus of speculative enthusiasm from the stock market was accompanied by a precipitous decline in broker's loans. Improved spring retail trade and the reduction of the Federal Reserve Bank discount rate to 3% at the beginning of May could not overcome the plethora of depressing factors. Bull optimists could now point to nothing closer than the fall trade period as a driving force for future recovery. (In the days before air conditioning, economic slowdowns were normal for the summer months.)
The trade war:
A new Canadian tariff was estimated as costing the U.S. $225 million in lost export business, and France threatened retaliatory tariffs if the U.S. passed the much-debated Smoot-Hawley Tariff bill. After all, the tariffs of the U.S. - the world's principal creditor nation - were already the second highest in the world - trailing only those of Spain.
?
The issue was still in doubt - especially in the Senate and with respect to whether Pres. Hoover would sign the bill. In one of the most glorious moments for the profession, 1,028 economists put their names on a petition to Hoover in opposition to the tariff bill. The petition was published in the N.Y. Times on May 4. However, the usual business and labor constituents were seeking protection from foreign competition, and many in Congress were anxious to oblige.
Gold flows grew in importance. Lowered prices and decreased trade put heavier stress on financial resources heavily encumbered not just with ordinary trade and investment debts but also with WW I financial obligations. France and the U.S. gained gold and hard currency reserves. They were "winning" the trade war - but losing the world.
?
England, Germany and the Central European nations were heavy losers. The French economy started to slip in May.
?
Silver, a vital monetary metal, crashed in May, when the Chinese Reserve Bank was forced to cease purchases. This cut deeply into Indian and Chinese financial strength as well as that of several Latin American nations that used silver to denominate their currencies, and drastically reduced their imports. The English and U.S. textile industries were especially hard hit, as was the price of cotton and other fibers. Many other industries suffered lesser but still significant losses.
Residential construction was cut almost in half.
Unemployment rose sharply in May - reaching the worst levels in 11 years. Sharp wage cuts were reported, especially for nonunion workers. Retail trade for June fell 10% under 1929 figures with many sharp cuts in prices. The bankruptcy rate in June surged about 15% above the rate in May.
?
Commodity prices were now sinking like stones - at something more than 2 1/4% per month - with a big decline in April. World money rates had been cut in half since October, 1929, and private lending rates had declined even faster.
?
On June 9, the stock market suffered its sharpest loss of the year as the decline resumed. The next day, short covering and bargain hunters pushed a market recovery of practically all the previous day's loss. But U.S. Steel production declined to 71% and its unfilled orders report showed a dramatic decline. On June 11 an even bigger market drop wasn't stemmed until financial leaders stepped in with big orders for key stocks.
?
This typical whipsawing was killing the margin speculators - both long and short - and was chasing many out of the market. The investment trusts were reportedly now heavily committed to the stock market. Steel dropped to 69% of capacity.
The Smoot-Hawley Tariff passed the Senate on a narrow 44-to-42 vote on June 13, supported by almost all the Republicans. Europe angrily canceled large orders for U.S. copper and non-ferrous metals (lead, zinc). All commodity prices began to decline again. A soon to be familiar song was heard.
?
Rye lowest in 30 years, oats lowest since 1922, exports and imports smallest since 1924. All business indices dropping. No hope for early recovery.
?
Crash on June 16 as the House passed the Smoot-Hawley Tariff, again supported by almost all the Republicans. Pres. Hoover wasted no time. Ignoring the pleas from a vast host of the nation's economists, he signed the Smoot-Hawley Tariff on June 17, 1930. Expectations that political leaders would eventually prove capable of handling the international crisis were now shattered by clear proof that they could not even avoid making matters much wors
