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I was pleasantly amazed when scouring through several books to understand the magnitudes and circumstances of the current credit crunch - which had weak parallels to the panic of 1907 and seemingly greater coincidences to the great crash of 1929 which led to the extended slump thereafter.
A debate in congress with Bernanke some time last year highlighted Hoover's interventionist policies in that fateful year - 1929, where it all came crashing down. My interest was piqued and to the history books I went to verify the outrageous claims that "the fed did do something" then.
All along I was taught quite differently.
Unfortunately, the historian's records speak for it self - and the events below have led me to slowly realise many things have been somewhat conveniently omitted from history books and scholarly articles.
"Its not 1929 because, the Fed did nothing then." - I hear this once too often as people wave away concerns on a repeat of history. The skeptic in me had to find out.
Read this section and you'd be amazed as I was about the parallels to today. Bold sections are added by me.
Do tell me if you're sure of otherwise.
http://www.mises.org/rothbard/agd/ch...flating_credit
Chapter 8
If the Federal Reserve had an inflationist attitude during the boom, it was just as ready to try to cure the depression by inflating further. It stepped in immediately to expand credit and bolster shaky financial positions. In an act unprecedented in its history, the Federal Reserve moved in during the week of the crash-the final week of October-and in that brief period added almost $300 million to the reserves of the nation's banks. During that week, the Federal Reserve doubled its holdings of government securities, adding over $150 million to reserves, and it discounted about $200 million more for member banks. Instead of going through a healthy and rapid liquidation of unsound positions, the economy was fated to be continually bolstered by governmental measures that could only prolong its diseased state. This enormous expansion was generated to prevent liquidation on the stock market and to permit the New York City banks to take over the brokers' loans that the "other," non-bank, lenders were liquidating. The great bulk of the increased reserves-all "controlled"-were pumped into New York. As a result, the weekly reporting member banks expanded their deposits during the fateful last week of October by $1.8 billion (a monetary expansion of nearly 10 percent in one week), of which $1.6 billion were increased deposits in New York City banks, and only $0.2 billion were in banks outside of New York. The Federal Reserve also promptly and sharply lowered its rediscount rate, from 6 percent at the beginning of the crash to 4 percent by mid-November. Acceptance rates were also reduced considerably.
By mid-November, the great stock break was over, and the market, falsely stimulated by artificial credit, began to move upward again. Standard and Poor's stock price monthly averages, which had climbed from 56 in mid-1921 to 238 in September 1929-more than quadrupling-fell to 160 in November, a one-third drop in the course of two months. By the end of the year, stock prices had risen by several points. The stock market emergency over, bank reserves declined to their pre-crash levels. In two weeks-from November 13, when stock prices hit bottom, to November 27-member bank reserves declined by about $275 millions, or to almost exactly the level existing just before the crash. The decline did not come in securities, which increased in the Federal Reserve portfolio from $293 million on October 30 to $326 million a month later-a rise of $33 million. Discounts fell by about $80 million, and acceptances by another $80 million, while money in circulation embarked on its seasonal increase, rising by $70 million. Thus, from the end of October to the end of November, controlled reserves were reduced by $111 million (including miscellaneous factors not itemized here); uncontrolled reserves, which were more important, fell by $165 million.
By the end of 1929, total reserves at $2.36 billion were only a little over $20 million below the level of October 23 or November 27 ($2.38 billion on each date), but the distribution of factors was considerably different. Thus, while total reserves were almost the same on October 23 and December 31, security holdings had increased by $375 million, more than tripling Reserve holdings of U.S. governments. Total discounts were about $165 million less, acceptances slightly larger, money in circulation higher by over $100 million, and the gold stock down by $100 million. Of the $23 million fall in reserves from October 23 to December 31, controlled reserves increased by $359 million (with government securities the overriding factor), while uncontrolled reserves fell by $381 million. It is evident, therefore, that the failure to inflate reserves over the last quarter of 1929 was no credit of the Federal Reserve, which did its best to increase reserves, but was foiled by the decline in uncontrolled factors. The total money supply, as gauged by member bank demand deposits adjusted and time deposits, increased slightly-by about $300 million-during the final quarter of 1929.
President Hoover was proud of his experiment in cheap money, and in his speech to the business conference on December 5, he hailed the nation's good fortune in possessing the splendid Federal Reserve System, which had succeeded in saving shaky banks, had restored confidence, and had made capital more abundant by reducing interest rates. Hoover had done his part to spur the expansion by personally urging the banks to rediscount more extensively at the Federal Reserve Banks. Secretary Mellon issued one of his by now traditionally optimistic pronouncements that there was "plenty of credit available." And William Green issued a series of optimistic statements, commending the Federal Reserve's success in ending the depression. On November 22, Green said:
All the factors which make for a quick and speedy industrial and economic recovery are present and evident. The Federal Reserve System is operating, serving as a barrier against financial demoralization. Within a few months industrial conditions will become normal, confidence and stabilization in industry and finance will be restored.
A debate in congress with Bernanke some time last year highlighted Hoover's interventionist policies in that fateful year - 1929, where it all came crashing down. My interest was piqued and to the history books I went to verify the outrageous claims that "the fed did do something" then.
All along I was taught quite differently.
Unfortunately, the historian's records speak for it self - and the events below have led me to slowly realise many things have been somewhat conveniently omitted from history books and scholarly articles.
"Its not 1929 because, the Fed did nothing then." - I hear this once too often as people wave away concerns on a repeat of history. The skeptic in me had to find out.
Read this section and you'd be amazed as I was about the parallels to today. Bold sections are added by me.
Do tell me if you're sure of otherwise.
http://www.mises.org/rothbard/agd/ch...flating_credit
Chapter 8
If the Federal Reserve had an inflationist attitude during the boom, it was just as ready to try to cure the depression by inflating further. It stepped in immediately to expand credit and bolster shaky financial positions. In an act unprecedented in its history, the Federal Reserve moved in during the week of the crash-the final week of October-and in that brief period added almost $300 million to the reserves of the nation's banks. During that week, the Federal Reserve doubled its holdings of government securities, adding over $150 million to reserves, and it discounted about $200 million more for member banks. Instead of going through a healthy and rapid liquidation of unsound positions, the economy was fated to be continually bolstered by governmental measures that could only prolong its diseased state. This enormous expansion was generated to prevent liquidation on the stock market and to permit the New York City banks to take over the brokers' loans that the "other," non-bank, lenders were liquidating. The great bulk of the increased reserves-all "controlled"-were pumped into New York. As a result, the weekly reporting member banks expanded their deposits during the fateful last week of October by $1.8 billion (a monetary expansion of nearly 10 percent in one week), of which $1.6 billion were increased deposits in New York City banks, and only $0.2 billion were in banks outside of New York. The Federal Reserve also promptly and sharply lowered its rediscount rate, from 6 percent at the beginning of the crash to 4 percent by mid-November. Acceptance rates were also reduced considerably.
By mid-November, the great stock break was over, and the market, falsely stimulated by artificial credit, began to move upward again. Standard and Poor's stock price monthly averages, which had climbed from 56 in mid-1921 to 238 in September 1929-more than quadrupling-fell to 160 in November, a one-third drop in the course of two months. By the end of the year, stock prices had risen by several points. The stock market emergency over, bank reserves declined to their pre-crash levels. In two weeks-from November 13, when stock prices hit bottom, to November 27-member bank reserves declined by about $275 millions, or to almost exactly the level existing just before the crash. The decline did not come in securities, which increased in the Federal Reserve portfolio from $293 million on October 30 to $326 million a month later-a rise of $33 million. Discounts fell by about $80 million, and acceptances by another $80 million, while money in circulation embarked on its seasonal increase, rising by $70 million. Thus, from the end of October to the end of November, controlled reserves were reduced by $111 million (including miscellaneous factors not itemized here); uncontrolled reserves, which were more important, fell by $165 million.
By the end of 1929, total reserves at $2.36 billion were only a little over $20 million below the level of October 23 or November 27 ($2.38 billion on each date), but the distribution of factors was considerably different. Thus, while total reserves were almost the same on October 23 and December 31, security holdings had increased by $375 million, more than tripling Reserve holdings of U.S. governments. Total discounts were about $165 million less, acceptances slightly larger, money in circulation higher by over $100 million, and the gold stock down by $100 million. Of the $23 million fall in reserves from October 23 to December 31, controlled reserves increased by $359 million (with government securities the overriding factor), while uncontrolled reserves fell by $381 million. It is evident, therefore, that the failure to inflate reserves over the last quarter of 1929 was no credit of the Federal Reserve, which did its best to increase reserves, but was foiled by the decline in uncontrolled factors. The total money supply, as gauged by member bank demand deposits adjusted and time deposits, increased slightly-by about $300 million-during the final quarter of 1929.
President Hoover was proud of his experiment in cheap money, and in his speech to the business conference on December 5, he hailed the nation's good fortune in possessing the splendid Federal Reserve System, which had succeeded in saving shaky banks, had restored confidence, and had made capital more abundant by reducing interest rates. Hoover had done his part to spur the expansion by personally urging the banks to rediscount more extensively at the Federal Reserve Banks. Secretary Mellon issued one of his by now traditionally optimistic pronouncements that there was "plenty of credit available." And William Green issued a series of optimistic statements, commending the Federal Reserve's success in ending the depression. On November 22, Green said:
All the factors which make for a quick and speedy industrial and economic recovery are present and evident. The Federal Reserve System is operating, serving as a barrier against financial demoralization. Within a few months industrial conditions will become normal, confidence and stabilization in industry and finance will be restored.
each one you bring up very Ligitiment points. Good going peeps. Well done. I can extract valuable information from everyones posts here.
My Head Hurts
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