Hoover is wrongheaded.
The Fed pumped money into the banking system in the 20s. The newly created money made its way to stock speculators and I think land speculators in Florida also.
The device is of course the level of interest rates.
In 1929 just as in the dot-com bubble and todays housing bust, The Feds increasing of commercial bank reserves went to the loan market allowing for the boom, and the bust arrives when the Fed reverses its monetary policy and starts raising rates.
The reasons the Fed raised rates differred but the result was the same.
Jobs and businesses that sprouted on the back of the boom are liquidated by the market.
Politicians start calling for the Fed to again prime the loan market and bring on prosperity. Deja vu.
So the boom originates in the business loan market.
The 1929 stock market crash scared depositors and began pulling their money out from banks en masse.
This forced banks to call in loans early causing widespread business failures, and of course job losses.
This is a period where people distrusted whats left of the decimated banking industry. The idea that if only the Fed just pumped enough bank reserves, somehow banks will lend and customers will borrow.
Just read todays headlines to see if that assertion holds water. Is Bernanke and Friedman in this camp?
Falling demand for goods are a natural result of widespread unemployment. Falling demand puts downward pressure on prices. Really?
This is the feared deflation that has been repeated time and again. Now, if people are unemployed what is needed is more production, not less. Hoover in fact believed that low prices is what is causing the depression and not the other way around. He subsidized industries to reduce their production
in an attempt to artificially lift prices. This was one of many wrongheaded polices he instituted that turned a banking panic to a calamity. Had he left things alone, the market would have liquidated unsound investments and the economy would have regained its footing a lot faster—just as it has in previous panics.
Roosevelt only continued Hoovers efforts to increase the size of the government(New Deal 2). He poured billions into make work projects and by the time he left office,
the unemployment figures remained about the same.
The nature of employment simply changed from private to government. Music to socialists ears.
Paul Krugman received the Nobel Prize in economics.
(The prize is awarded by the Swedish Central Bank).
Is this the person?
Quantity Of Money—
In a productive economy where money supply remained relatively constant, the market will adjust the purchasing power of the currency. In other words, money will simply buy more goods.
The opposite–increasing the money supply– produces
rising prices, in other words, money loses it’s purchasing power.
$1.00 in 1913 is the equivalent of $22.10 in 2008 is an example.
