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There is a chapter at the end titled "Cause and Consequence" in which he points out that credit has been easy many times before and after without causing a similar boom and bust. Furthermore, he says, "money, by the ordinary tests, was tight in the late 1920s".
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Okay, so in the early part of the expansion money was real easy and then they tightened it at the end (to try and cool it down) and the inevitable happened??
The Fed was created on the heels of the 1907 banking crisis. The idea was to always have enough liquidity to fend off recession (and worse, a run on deposits). Some say this crisis was "helped along" to support a central bank creation. Central banking certainly was not invented here and it was something the founding fathers tried to avoid.
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I would argue that the system of fractional reserve banking and fiat money has been quite successful. Life is good. If the creation of the federal reserve was the cause of the depression, how have we done so well since then?
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The fed did not cause the depression in and of itself. It did create an environment where the normal balances could get further out of wack because it gave HUMANS more ability to try and manipulate economies.
IMO, the creation of the Fed and paper money elongates expansion and contraction and increases the amplitude.
You simply cannot create greater prosperity (expansion) through paper money and deficit spending without being subject to the same degree of amplitude on the contraction.
Maybe the jury is still out.
Last edited by wig at Jun 9 2003, 11:18 AM
06-09-2003
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