Tweet
Originally posted by Berzerker
He did it early in '33, not the middle of our worst economic downturn, but go right ahead and tell us how FDR saved us from the worst effects of the Depression by banning constitutional money.
He did it early in '33, not the middle of our worst economic downturn, but go right ahead and tell us how FDR saved us from the worst effects of the Depression by banning constitutional money.
And as Wikipedia states:
Those who believe that the Great Depression could have been avoided if the Federal Reserve had acted are not aware of the fact that the Federal Reserve could not act.[citation needed] At that time the amount of credit that the Federal Reserve could issue was limited due to laws which required partial gold backing of that credit. By the late 1920's the Federal Reserve had almost hit the limit of allowable credit that could be backed by the gold in its possession. This credit was in the form of Federal Reserve demand notes. Since a "promise of gold" is not as good as "gold in the hand", during the bank panics a portion of those demand notes were redeemed for Federal Reserve gold. Since the Federal Reserve had hit its limit on allowable credit, any reduction in gold in its vaults had to be accompanied by a greater reduction in credit.
In order to expand the monetary supply (instead of having it contracted), the government would have had to bought more gold under the gold standard ideals.
Also you can look at the reason Britain abandoned the gold standard in WW1, in the first place. Because they needed to fund the war and couldn't when notes were backed by specie. Meaning that the gold standard is incredibly inflexible and if Britain hadn't abandoned it, there is a possibility that it wouldn't have been able to defend France as it did.
Of course, then Britain felt it needed to go back to the gold standard which caused all sorts of problems:
One reason for the monetary inflation was to help Great Britain, which, in the 1920s, was struggling with its plans to return to the gold standard at pre-war (World War I) parity. Returning to the gold standard at this rate meant that the British economy was facing deflationary pressure.[8] According to Rothbard, the lack of price flexibility in Britain meant that unemployment shot up, and the American government was asked to help. The United States was receiving a net inflow of gold and inflated further in order to help Britain return to the gold standard. Montagu Norman, head of the Bank of England, had an especially good relationship with Benjamin Strong, the de facto head of the Federal Reserve. Norman pressured the heads of the central banks of France and Germany to inflate as well, but unlike Strong, they refused.[9] Rothbard says American inflation was meant to allow Britain to inflate as well, because under the gold standard, Britain could not inflate on its own.
(same source as prior quote)
Rothbard being, of course, the Austrian school economist, Murray Rothbard.
Not saying the Fed wasn't to blame, but on the same token, it's hard to really "expand the money supply" (which is the monetarist charge) when you have to back notes with gold.
The fed screwed up because they had a screwed up POV. They didn't expand the money supply when they should have. You will go on and on about how they contracted it, but that part isn't how they screwed it up. The fed often makes mistakes like that, but it doesn't cause a depression. The fed ****ed up because they were on the gold standard and they didn't believe in expanding the money supply to prevent a depression. The stupid idiots had an Austrian School mentality. They actually thought it was a good thing that banks were failing.
Theories aren't nutcases, people are. Just let it go. Discuss the topic.
Comment