What nonsense! The Great Depression was caused by the Federal Reserve’s taking precisely the opposite action it should have taken, and has been taking ever since to head off economic downturns. The Fed SHRUNK the money supply by 30% in the few years following the stock market crash. It caused rather than prevented bank failures.
I just heard Rush commenting on this article, but then he drew the wrong conclusion, falling into the Smoot-Hawley sink hole as the main exacerbating factor after the stock market crash. Wrong! That was a minor factor. Here is a great Hoover Institution article on the Great Depression that anyone interested in that era and its causes should read:
http://www.hoover.org/publications/policyreview/3476271.html
And a short excerpt:
“The great depression and its offspring, the New Deal, could both have been avoided if the Federal Reserve had performed the task assigned to it. All the Federal Reserve had to do to avoid the Depression and the subversion of the American constitutional order was to purchase $1 billion in government securities during the 10-month period from December 1929 to October 1930. The result would have been an increase, instead of decrease, in high-powered money, and the banking crisis that began in the autumn of 1930 would not have occurred.”
Don’t argue with me. Read this great article and then comment (though it is moderately long).
The Feds institute the Income Tax and 16 years later the economy collapses. Hmmmmmmmm
Another excerpt from the article referenced in #9:
“The Federal Reserve is the most powerful institution of a new order that believed in the efficacy of government and its ability to do good. The same Federal Reserve caused the Great Depression when its wise men made a series of cumulative mistakes that contracted the money supply by one-third and wiped out purchasing power in an unprecedented fashion.”
“The Fed SHRUNK the money supply by 30% in the few years following the stock market crash. It caused rather than prevented bank failures.”
As Milton Friedman pointed out, the Fed did this to correct an earlier mistake. From 1913 to 1926 or so, the Fed increased the money supply by a factor of 3 — they thought they were being careful, but their calculations did not take into account that people were starting to use checking accounts (which were not in their calculations). The only reason that prices didn’t rise was that productivity increased by the same amount due to the implementation of the factory system.
So what? Well, the US was part of the world gold standard, where the amount of money in circulation was dictated by the amount of gold in their vaults. So the Fed began to reduce the money supply to correct their earlier mistake. Unfortunately, it takes a while for inflated money to work its way through the economy, so the stock market kept rising. When Europeans sent money to invest in the ever rising US stock market, eventually they had to send gold to balance the accounts; and thus they had to reduce THEIR money supply, limiting loans, and that caused their businesses to go into recession. By the gold standard rules, the US was supposed to lower interest rates and increase their money supply (then people would send money back to europe, and hence gold), but the Fed didn’t do this because they were secretly correcting their previous mistake. So Europe went into the depression 2 years before the US did, but that too was caused by the Fed.
They kept reducing the money supply through 1936, while Hoover and Roosevelt were doing everything they could think of to restart the economy.
On the other hand, the Fed may have caused things, but it was Hoover and Roosevelt who instituted wage/price controls and other regulations that reduced rather than increasing business activity, thus making things worse.
I think it was Bernanke who recently admitted that the Fed caused the Depression, but then he added that they are smarter now ( ?!?!?!?!).