Posted on 06/06/2016 4:56:40 AM PDT by expat_panama
“Along w/ that the Fed came into its own w/ the FOMC and the lessons it learned about money supply in 29.”
The Fed was like a deer in the headlights when the banking collapses began with the Depression. Not knowing what they should do they did nothing. Their first leader Benjamin Strong had just died and they were pretty much without a strong personality to make decisions. Probably didn’t fully understand all of the tools available either. So they stood aside as 30% of the money supply simply evaporated, taking the savings of millions of people with it. No FDIC to protect the customers.
I suspect that only works in a restrictive market where neither foreign interests nor speculators have free reign.
As a far more modern model, it’s important to look at post-WWI Germany. Required to pay punitive reparations in both commodities and gold, the German fiat based Papiermark strongly hyperinflated. So how do you recreate a gold backed currency in such a state?
It was first done by creating a transitional, gold backed currency, the Rentenmark. It was solely for use between the government and banks, to resolve major credits and debt with a stable currency.
However, at the same time, commodities were being used to repay war reparations. So the Rentenmark was backed both by gold and commodities. And it so quickly normalized this restricted currency that in turn it could be used to back yet another gold backed currency, the Reichsmrk, which even survived the Nazis through the war years.
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