While I will agree that the UNITED STATES was unready for a major war in 1937, especially in the case of the U.S. Army's ground formations (always the neglected child of Congress come budget time) there are several things here that are just plain wrong.
In 1937-38 the U.S. had, by far, the best carrier capable dive bomber (SB2U) and torpedo bomber (TBD) yet fielded Both aircraft were revolutions, monoplanes, almost all metal, fast and with decent range. Both the Vindicator and Devastator were faster than the IJN primary carrier fighter of the era the A4N and were nearly as fast as the A5M Claude. Even the biplane SBU was an excellent aircraft for the era and the SBC, while slower and of the old bi-plane format, was nearly 20 mph faster than the A4N, and a very sturdy design (something not to be ignored when even the best IJN fighter of the Era, the A5M, carried only 2 .30 cal machine guns) was very much the equal of and attack aircraft the IJN owned.
The IJN's BEST torpedo bomber of the era, the B4Y Jean was more than 30 mph slower the the TBD and the D1A dive bomber was close to 60 mph slower than the SB2U. Both were slower than the F2F-1 & F3F fighters that would have hunted them and (although I can't believe I am typing this) the just entering service F2A Buffalo would have feasted on the pre-war IJN designs.
The belief that IJN pilots of this era were better than their USN counterparts is also terribly flawed. USN pilots in the 1930's were the equal of any in the world, while fairly few in number (as was the case in every country in 1937) they had many hundreds, if not thousands of flight hours, were experience in operating all aircraft types (it wasn't until the war started that the USN started to allow pilots to specialize in types, and even then it was because of training needs, not a change if mindset). The JNAF pilots were not yet the highly veteran combat tested professionals that would fly off the
Kido Butai's decks on December 7th, they were well trained, yes, intensely dedicated, but not a cut above their U.S. counterparts.
American carriers and carrier tactics were, simply put, the best in the world in 1937. This was more a function of the American policy of putting flight trained officers into command of carriers as much as anything else (the scandal that occurred just before Midway when Halsey recommended, and Nimitz placed, Ray Spruance (a CRUISER Officer


) in command of TF 16 is a reminder of this policy) along with the fact that the USN had the best set of aircraft then operating off flight decks.
The USN commander in the Pacific was very much of the old school, a big gun devotee like almost every senior naval officer on Earth, but he was not Admiral Bloch (who was a much better officer than you credit him), but Admiral Japy Hepburn. He may not have understood the power the carrier represented, (no one did except the carrier officers and pilots themselves) but he was a highly experienced and respected officer with a record that included command of
USS West Virginia (during which the BB was awarded several commendations and awards, including target gunnery) as well as serving as Chief of Staff for Battle Force, Pacific, Commander, U.S. Fleet Submarine Forces AND Commander, Naval Intelligence. He was, after his term as CIC, U.S. Fleet, a primary author of the eponymous Hepburn Board which laid out the expansion plan of the USN that, well, won the war. In all he was an exceptionally qualified and remarkably adaptable, highly intelligent Naval officer.
Hepburn's IJN counterpart as Commander of the Combined Fleet, Admiral Osami Nagano, was a less experienced officer, with only a single ship command on his record, and a very long history of staff work (interestingly, he had undoubted met Heburn as he was a member of the Japanese delegation to the 1935 London Conference before Japan walked out in disgust). He was, as all IJN officers were, a devoted believer in "The Decisive Battle" and a devout believer in the strength of the battleship as arbiter of combat success at sea. He lacked Hepburn's breadth of experience, as well as his command and combat experience.
It is easy to overlook the fact that the IJN hit the U.S. when the Japanese Fleet was at virtually its greatest point of superiority over the USN (nothing wrong with that, indeed it is exactly when you should engage an enemy) with two brand new fleet carriers having entered service in the five months prior to Pearl Harbor (with
Zuikaku joining the
Kido Butai just weeks before the opening of hostilities), the Zero barely having completed its introduction and integration into the Fleet (several light carriers were still equipped with the A5M and B4Y both of which served until mid 1942) and the D3A had also been in the fleet for less than a year. The USN was, by comparison, at the bottom of it's equipment cycle (fun fact: Grumman had the ribbon cutting ceremony on the brand new factory it had constructed to build the TBF Avenger, by the time the cake had been served the U.S. was at war) with numerous new designs already ordered or beginning delivery. That was the situation in December of 1941, it was NOT the situation in 1937.
Any engagement between the IJN and USN in 1937 off, say, Midway or Wake would have been a far closer thing than indicated, with the chances for a USN victory being very good.
Well after the Phillipines fall and Guam and possibly Wake being next, the 1938 midterms will probably be rolling around and the Republicans would likely make large enough gains to get a majority in both houses.
With the Pacific Fleet reduced in strength, Japan's next logical move is to go after Midway. By now, Bloch has probably been sacked, so the Pacific Fleet would likely have a new commander along with being reinforced from the Altantic Fleet. It'd likely be Kimmel taking over I should think. Remember Nimitz is still just a Captain at this point, even if his star is on the rise.
So I'd suspect you'd see a force consisting of 3 carriers on Japan's part(assume the US will get at least one, and the light carriers never can keep up) against 3 on the US part(figure the US would have 2 in the theater at the opening of hostilities which were lost, so the other two, plus I'd imagine Langley would be brought back into service at this point) plus support ships which ratios would probably favor Japan.
Even on more or less even terms, I still think you'd see a Japanese victory here. Japan's planes and pilots were superior at this point. They would then assault the island, and given the unpopularity of the war, and the state of the US army at the time, you're likely only going to have a division or so defending the island, though they'll inflict heavy casualties on the attackers, the island will fall I should think.
By the point, the Republicans will probably be slashing the war budget in an effort to force Roosevelt to negotiate a peace. Figure on a Greater East Asia Co-Propserity Sphere Phillipines, Guam to Japan, Midway and Wake demilitarized, Japan gets perfered trade status instead of repirations and the US has to pledge not to interfere in China. Though I'd see Roosevelt continuing to do so, if under the table.
In regards to the Depression, the US was already on the climb back up, and a sudden, if brief, war boom would actually help out, even if it's along with the bitter taste of defeat. Certainly Roosevelt's going to be rebuilding the fleet for the remainder of his term.
This isn't going to affect Europe all too much I don't think. Germany still starts the European war in 1939, while Japan has the time and freedom to continue digesting China.
By the time 1940 rolls around, France has still fallen and Japan's still bogged down in China. In the US, I believe Wilkie's triumphant nomination for the GOP would be butterflied away by the Panay war, and Taft would get the nomination and win the Presidency in 1940. Interesting thing is, would Roosevelt even have the pluck to run for a 3rd term after this. Or would Garner or Wallace take a shot at it?
Hmm, this is actually getting somewhat interesting.