Everything is peachy.
Posted on 12/13/2005 5:45:39 AM PST by BJClinton
This is an excellent point.
The depression was NOT caused by government overspending! This arguement ignores the actual reported money supply during that period of time, as documented in Anderson's book "Monetary History of the United States 1918 to 1945". The depression was caused by the misguided policies of the Federal Reserve.
Briefly, the money supply tripled from 1918 to 1926, creating an artificial boom, when the Fed started selling Federal Reserve Bonds needed by banks to make loans. The US at that time was supposedly under the gold standard, in which the total money supply was supposed to be limited by the amount of gold they held. The Fed thought it had things under control because prices were stable - mostly due to increases in productivity (e.g., manufacture of autos, pipelines carrying oil, use of electricity, rise of the factory system, etc.). But checking accounts were just becoming popular, and their impact on the money supply was not taken into account by the Fed, and so their estimates were off by over 100%. One could take the position that the US went off of the gold standard in about 1920 because the Fed actions were not properly constrained by the amount of gold in the US.
When the Fed finally figured out they had screwed up, in typical government fashion, they began to try to correct the situation without telling anyone. They began buying Federal Reserve Bonds (needed by a bank in order to make a loan) in 1926, with a goal of reducing the money supply by 1/3. It took until 1929 for the reduction in the money supply to finally bite, and the stock market tumbled. They continued to buy these bonds even as late as 1936, when FDR was trying every crazy idea his brain trust thought of to try to restart the economy.
Europeans began to send gold to the US in the early 1920s because of political instabilities, and the fact that the US stock market was starting up. This reduced the money supply of European countries, and they all went into recession. Because gold entered the US, the US was supposed to reduce interest rates so that gold could flow back to the European countries; but the Fed was trying to fix its error, so it kept the gold and did not reduce interest rates. This deepened the European recessions into their depressions, a full 2 years before the US depression; and this brought Hitler to power in Germany.
Banks failed in NY in 1929 to 1930 because they had loaned money to people to buy stocks, with low margins (i.e., banks put up 90% of the money to buy GM stock). When stocks tumbled by more than 1/3, the banks were legally bankrupt, but the Fed couldn't let all of them go down.
Meanwhile, the banks did not have the Federal Reserve Notes needed to make loans to farmers for spring planting, or to retailers to buy goods to sell, so farms and medium sized retailers went bankrupt; then the manufacturers couldn't sell enough stuff, so they laid off the workers. It was a downwards spiral, ultimately resulting in 20% unemployment.
FDR didn't help the recovery at all by changing the price of gold daily, and passing laws which completely regulated the economy, creating such uncertainty that it paralyzed the ability to make business decisions -- so firms didn't spend what was left of their capital to restart, and unemployment was over 20%.
The unemployment rate was as bad in 1940 as it was in 1932 - there was no recovery due to FDR's economic policies. It did in fact take WWII to restart the economy. And the Fed has never taken responsibility for their screwups.
I do believe this to be the case. The war increased industrial capacity. That is the ability to make stuff like guns and bombers. When the GI's returned home, they wanted two things; families and the stuff that families need. The same machinery and organization that makes guns and bombers can also make refrigerators, stoves, and automobiles. The only hiccup in the immediate postwar period was getting Uncle Sam's hands out of everything and letting business fill the needs of post war Americans.
America was doing well until 1965 and LBJ.
Forget gold. Get the government out of the business of issuing currency.
Give me a break. And let Bill Gates, the Walton heirs, Trump, and Warren Buffett print their own monies?
Government is supposed to print money. It's in the Constitution.
Many good points and the answer to your final question is no.
I never understood the gold standard. Gold is a limited resource while production of goods and services grows exponentially. How is there enough gold to keep up? We need a way to increase the money supply, and a fixed asset like gold does not allow for that.
Same with paper....
Your understanding is correct. The economy was dead in the water, leading FDR in the 1936 election to grossly expand his New Deal initiatives, which also didn't do a lot of good in the aggregate, although they provided important support for many impoverished families.
If you know someone who, eg, was employed as a young man by the WPA or CCC, you will get a story that helps to understand why FDR was viewed as a god by so many.
Well my money is plastic, has a magnetic strip and comes from Chase. It ain't in the Constitution but I'm earning double rewards on all of our Christmas presents...
They already do, its called stock.
Everything is peachy.
There certainly is enough gold to cover all the debt.
It only depends on one thing.
The price of gold.
Rumor has it that there ain't none.
I think the official listings about how much is supposed to be there are like 8,000 tons.
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