The Arsenal of Democracy and the French Fries of Freedom
Jan 31st 2013 11:30AM
Updated Jan 31st 2013 12:21PM
On this day in economic and financial history...
The Second World War transformed the United States in many ways. Never before had the entire engine of American productivity been so completely tuned to warfare. Such single-minded focus required more than the contribution of existing defense contractors. It demanded the enlistment of America's greatest manufacturers: the auto industry. That's why, on Jan. 31, 1942, not long after the bombing of Pearl Harbor, the U.S. War Production Board banned the production of all civilian cars and light trucks. The great manufacturing plants of Ford , General Motors, Chrysler, and smaller companies would be converted to war production until the German and Japanese threats were finally nullified.
The Big Three became popularly known as the Arsenal of Democracy during the war. A single massive Ford plant at Willow Run, Mich., produced more than 300,000 military aircraft. GM's Chevrolet division churned out half a million trucks, 8 million artillery shells, and 60,000 Pratt & Whitney aircraft engines. Chrysler produced more than 22,000 tanks and 400,000 military trucks, as well as a tremendous amount of aircraft parts and munitions. Over the course of the war, the auto industry produced $29 billion worth of war goods, which included 12.5 billion rounds of small-arms ammunition and 245 million shells, in addition to all the planes, tanks, and trucks it was already constructing.
Take that, Sputnik!
About four months after the Soviet Union launched Sputnik, the world's first satellite, America answered with a satellite of its own. On Jan. 31, 1958, Explorer 1 was launched into space atop a Juno rocket booster, officially beginning the Space Race that would have profound implications for humanity. The small, rocket-shaped satellite stayed in orbit for more than 12 years, although it ceased transmitting in mid-May of 1958. By the end of 1958, the U.S. would launch the world's first communications satellite, which led to a new era of telecommunications on Earth.
Would you like fries with that, comrade?
The first pillars of American capitalism were erected behind the crumbling Iron Curtain less than two months after the Berlin Wall fell. On Jan. 31, 1990, the first McDonald's (NYSE: MCD) opened in Moscow, and eager Muscovites swarmed the Golden Arches to sample the long-forbidden delicacies of America. The pleasant workers and clean, efficient operation came as a surprise to many customers who had been so used to dealing with surly shopkeeps and gross inefficiencies under the Soviet regime. More than 30,000 customers ordered Big Macs, fries, Chicken McNuggets, and more on that first day.
Less than two years later, the Soviet Union was gone -- but McDonald's stayed. That first Moscow restaurant remains the busiest McDonald's in the world, and in 15 years it served more than 100 million customers. On the 15th anniversary of that opening, McDonald's celebrated its 127 Russian restaurants, which served half a million customers each day, totaling more than one billion across all locations dating back to the first Moscow restaurant.
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Rebuilding Ma Bell
AT&T was broken apart by an antitrust crusade in 1984. On Jan. 31, 2005, two of the largest post-divestiture members of the former Bell System announced their intentions to get back together again. That day, SBC Communications, formerly Southwestern Bell, made a cash-and-stock offer of $16 billion for AT&T, its former parent, and also agreed to assume $6 billion of AT&T's debt.
After two decades of separation, SBC had become far larger than AT&T, which struggled in its core long-distance telephone market as online services and cellphones made landlines increasingly irrelevant. According to a CNNMoney report on the deal, SBC was then valued at $78.3 billion, with 163,000 employees and $41 billion in revenue, not counting its 60% stake in Cingular Wireless. AT&T was only worth $15.7 billion at the time, with $31 billion in revenue and 47,000 employees.
This deal came less than nine months after AT&T had been dumped from the Dow Jones Industrial Average for Verizon, ending what had been an unbroken 65-year streak of index membership. SBC had been part of the Dow since 1999, so AT&T's streak technically continued as a result of the acquisition, particularly after SBC decided to maintain the AT&T name for the combined company. Analysts were skeptical of the deal, questioning the value of AT&T's enterprise customers and the value of AT&T itself, which received no premium and saw shares fall by 7% after the news broke.
The deal closed that November after news had broken that Verizon and MCI would also be combining. The new AT&T's stock growth accelerated into 2007 but was cut short (as was everything else) by the 2008 financial crisis. However, from the day of the merger to its fifth-year anniversary in early 2010, the new AT&T handily bested the Dow, gaining 28% to the index's 6% loss.
Prop up that peso
On Jan. 31, 1995, with the value of the Mexican peso at an all-time low, President Bill Clinton used his executive power to end-run an earlier Congressional rejection by providing Mexico with a $20 billion loan. The loan was to be made through the Exchange Stabilization Fund -- the first time that fund had been used to support a foreign currency. Congress had turned down a $50 billion loan proposal, but Clinton claimed that a Mexican collapse would lead to a flood of illegal immigration and a weakened trade situation that would disrupt the American economy.
Critics were angered by the apparent rescue of a failed state and the Wall Street bankers that had made significant investments in Mexican bonds. However, by 1997, Mexico had paid off the loan with $500 million in interest on top. In the decade following Clinton's bailout, the size of Mexico's economy expanded by 400%.
Bankrupt is the head that wears the crown
The Spanish Empire was once the most powerful in the world. Much of this power was supported by borrowing to the tune of millions of ducats each year. Unfortunately, expansion, wars, and general fiscal irresponsibility caused the Spanish crown to declare bankruptcy several times at the height of its power. One of the most devastating such bankruptcies occurred on Jan. 31, 1627, as the Spanish economy was in full meltdown.
Spain was then in the midst of the Thirty Years' War, a series of conflicts between most of the major European powers. The monarchy specifically sought to conquer the Netherlands at this time as a result of that nation's greatly expanded influence in the 17th century following its creation of the Dutch East India Company, which now posed a serious threat to Spanish hegemony. The war was undone -- as prior wars had been -- by the collapse of the Spanish economy. Currency devaluation led to such a severe inflationary crisis that parts of the nation reverted to bartering for years. Unable to collect taxes to fund its wars, Spain defaulted on its debts and forced larger creditors to accept an agreement under which they would receive royal lands and titles in exchange for a lesser payment on the nation's outstanding obligations.
The Spanish Empire continued on in a weakened state, but the fragility of its finances eventually brought about its decline. By 1643, an embarrassing defeat -- after financial difficulties forced the Spanish army to stop short of a major victory in 1636 -- made Spain's greatly feared military finally appear mortal, and it fell in influence among the major European powers. Had the Spanish crown not been so bad at managing its finances, the world might look very different indeed.
That's a lot of money for a bunch of blue aliens
On Jan. 31, 2010, James Cameron's Avatar became the first film in history to gross more than $2 billion. The film, distributed by News Corp.'s 20th Century Fox, had broken Cameron's previous record for Titanic, which went on to break the $2 billion mark as well during a second run two years later. Avatar single-handedly revived interest in the 3-D blockbuster, leading to a rush of films employing the technology -- with mixed results. The film finished its run with a $2.8 billion total take, far ahead of any other film in history.
The article The Arsenal of Democracy and the French Fries of Freedom originally appeared on Fool.com.Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, and McDonald's. The Motley Fool owns shares of Ford and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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