The FED Caused the Great Depression

It's still being run by flunkeys of the extremely rich of the day, like the Rockefellers. Or do you deny this?

Only under a Keynesian system where a central bank creates a false economic boom through easy credit and monetary expansion. This does not happen when the market is not given these false signals under a system with sound money and credit.

This contradicts the facts that I presented about Benjamin Strong. Do you have any explanation for what he did or are you just outright dismissing it based on warm cozy feel-good opinions that you have with no factual backing?

They weren't lefties. They have no political ideology. All they care about is making money, no matter what ideology they have to pretend to subscribe to in order to maintain it. At any rate, that's exactly what they did. You should read more about how the Federal Reserve Act was able to be tricked through Congress.

Do you really think that fiat money controlled by a central bank, which creates artificial booms through easy credit and monetary expansion, is characteristic of right wing free market enterprise? You are sorely mistaken if you believe so. The current crisis is a product of central economic planning, plain and simple. Central Economic Planning is not right-wing.

They didn't. FDR's policies lengthened the Great Depression. Unemployment was just as high when WW2 started as at the beginning of the Depression. If the Fed had been abolished and the government taken a hands-off approach, the economy would have corrected itself much more quickly. Besides, when the Bretton Woods agreement broke down (as the Austrians correctly predicted it would), and we went off the Gold Standard, that immediately set off the poor economic conditions of the 1970s. Hardly "40 years of prosperity".

 

Contributing factors, no doubt. But these factors alone were not enough to cause the massive economic crash. Can you deny any of the facts which I presented?

 

Then once the war was over, unemployment spiked and inflation was rampant. Government solutions are only temporary, but their consequences much worse. I don't believe that going to war justifies Collectivist policies of government supposedly improving the economy.

 

You want to live in a socialist dictatorship?

 

They get money like everyone else gets money. By saving it.

It's not where they got the money but how they apply it.

In 1929 the stock market was poorly regulated, just like the 2000 housing market. You could in those days buy stocks highly leveraged, just like the 2000 housing market. With a 90% margin, you could be $10 of stock for just $1 dollar. Just loke the 2000 housing market, this highly leveraged position made you lots of money when the price went up. If your $10 stock went to $11, only a 10% increase, you made 100% on your investment.

The highly leveraged positions allowed people to make fortunes with very little money to invest.

Just like the 2000 housing market, however, the danger in such highly leveraged position is that you are exposed to far more risk if the prices decline. A 10% decline in the stock wiped out your investment and exposed you to a margin call. Then you put up more money or sell. It was ok if it was one or two stocks, you could cover with your other position. But when the hold market declined, the base fell like a house of cards.

Just like 2000, the market collapsed because prices were bid up by highly leveraged speculators to prices that bore no reasonable relationship to the fundamental value of the property. When it collapsed trillions in wealth vanished.

 

I agree the Fed played a negative role.

In 1931, in the height of the panic with banks failing and business strangled for lack of money and people to scared to spend and hoarding money and horrific deflation making outstanding loan payments more and more burdensome and assets worth less and less, the Fed did precisely the *wrong* thing.

It raised interest rates and tightened the money supply even further.

Why did the Fed do this spectacularly dumb thing?

Because we were on the gold standard, and the runs on the banks and demand for gold to back the currency meant the Fed had to do the exact wrong thing.

It certainly wasn't the only thing that contributed to the GD, but it made things worse and constricted the recovery until 1934, when FDR dropped the gold standard, freeing the flow of money again, after which the economy began growing robustly.

Thankfully today we were not constrained by the same straightjacket, and the Fed was free to flood the economy with a trillion dollars to avoid the same fate, or the Great Recession of 2008-09 would have in all likelihood been the Great Depression II.

 

It was not the gold standard that was the issue. The Fed caused the GD in the first place. It would not have happened if the FED didn't exist. It doesn't matter whether the Fed tightened credit and contracted the money supply or if it would have created another boom with expansion of the money supply and lowering of interest rates. The fact is that central economic planning fails, period. People are not wise enough to control the laws of supply and demand in a world economy that has billions of participants and trillions of variables.

The economy did not begin growing robustly after 1934. It took another 7 years and a great war to get the economy back down to full employment, after which we saw rampant inflation and unemployment spike up again.

The Fed's policies are what caused the Great Recession of 08-09 in the first place. Their response has simply prolonged the inevitable Great Depression II, which will occur once the next bubble(that they just planted the seeds for) pops.

 

They were the most significant factors IMO, and the FED did play a role, but the FED, like the Federal Government, was using Laizze-faire economic policy to not tighten the credit standards that have been in existence since the FED creation in 1913. It was not until 1933 that the FED started to act more forcefully with monetary policy.

I love it. Austrian economists want to blame the FED for doing something, laizze faire, that they believe the government should be doing already.

 

The Fed "caused" the gold standard? Nonsense.

Year - % chg real GDP
1930 -8.6%
1931 -6.5%
1932 -13.1%
1933 -1.3%
1934 10.9%
1935 8.9%
1936 13.1%
1937 5.1%
1938 -3.4%
1939 8.1%
1940 8.8%

Nonsense.

 

"GD" does not stand for Gold Standard. It stands for Great Depression.

% change doesn't tell the whole picture. The economy didn't reach 1929 level GDP until 1937. Unemployment didn't reach full level until 1941, which was cheating.

Sense.

 

You can't have a laissez faire system with a central bank controlling the credit and money supply. What you're saying makes no sense.

 

Interesting thread with some facts I didn't previously know.

Basically, the Fed either caused it directly or exasperated problems that were already there by alternating printing and burning money (or creating a drastic inflation bubble then popping it). They didn't know how to ticker with the markets while maintaining stability and they still can't completely predict how the market will react to intentional inflation and disinflation. It's a fuzzy-math system in which a non-elected group of bankers holds all the cards.

 

FDR's reforms did nothing of the sort. FDR's reforms, or FDR’s violations of the Constitution could not even end the Great Depression after 12 long and hard years! FDR's reforms probably prolonged the Great Depression. The expansion of which you wrote was caused by the preparation for, and aftermath of WWII. The US spent money to modernize and build factories, then spent money to destroy the productive capacity of a good chunk of the rest of world (using bombs “Made in the USA” to drop on OTHER factories ). After WWII all those destroyed countries needed to buy stuff that was then produced in the US. Welfare spending NEVER creates any "economic growth;" just ANOTHER liberal lie.

 

Yes. The Fed is the root cause of our current economic problems. This time it will be worse because Bernanke will completely devalue the dollar.

Get ready for central banking and fiat currency to be proven as failures.

 

Ah yea, only after the Great Depression was caused largely by an international trade war (political manipulation of the free market), and an inelastic currency (mistakes made by the FED , an unconstitutional origination created by Democrats). Without unconstitutional interference of the free market no "fixes" would be necessary. Trust me when I tell you that if the "free market' (you, me, the owners of BIG BUSINESS) thought we would be invaded and our country destroyed, WE all would organize and spend he necessary money ourselves.

 

Correct - and that was proven by two non-conservative economists:

FDR did nothing to stop the Depression, his policies extended and worsened it.

 

You had a good post going before you blew it by writing “The housing market would not have been anywhere near as bad if Wall Street didn't figure out ways to pass risk around..." "Wall Street" only did, or copied what unconstitutional Democrat created Freddie and Fannie did as they were the first to securitize mortgage debt. They started to do that so THEY could make money to spend on further manipulating the housing market for political purposes, and to manipulate the free market. Just clarifying

 

The point was it began growing robustly in 1934. The fact that it did not completely recover until some years later is irrelevant to that fact and does not rebut it.

Year - % chg real GDP
1930 -8.6%
1931 -6.5%
1932 -13.1%
1933 -1.3%
1934 10.9%
1935 8.9%
1936 13.1%
1937 5.1%
1938 -3.4%
1939 8.1%
1940 8.8%

 

Ah NO, THE HOUSING MARKET WAS heavily REGULATED by Democrat regulation that told Freddie and Fannie to greatly increase their low to moderate mortgage holdings. Freddie and Fannie simply ran out of poor people with good credit that wanted to buy homes so Democrat controlled (and following Democrat orders) Freddie and Fannie lowered THEIR standards. Also, let’s not forget all that Democrat regulation that made banks go through CRA audits if they wanted to expand. In those audits banks had to show real risky loans in real bad neighborhoods so they made such loans. Do people like Obama suing banks like Citicorp for not making risky loans qualify as Democrat Regulation? If not it sure should!

 

Sorry - that link had expired. Here's another one on the same research.

 

That was the thing with the whole "subprime" market. Subprimes were loans that did *not* conform to F/F standards. Loan brokering with emphasis on no down payment, teaser rates, ARMs that borrowers could not afford were either not regulated or poorly regulated, resulting in millions buying homes on loan terms that were not justifiable. Big lenders mistakenly believed that had insured against default with completely unregulated credit default swaps. Everyone was assured the companies were strong by unregulated ratings agencies.

I've asked you before what percentage of defaulting or subprime loans were CRAs.

The fact you cannot identify that figure demonstrates the baselessness of this conservative claim.

The Federal Reserve, having examined the evidence, holds that empirical research has not validated any relationship between the CRA and the 2008 financial crisis.[103] At the FDIC, Chair Sheila Bair delivered remarks noting that the majority of subprime loans originated from lenders not regulated by the CRA, calling it a "scapegoat" and declaring it "NOT guilty." ... He noted that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. ... According to Janet L. Yellen, President of the Federal Reserve Bank of San Francisco, independent mortgage companies made risky "high-priced loans" at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis. ... Emre Ergungor of the Federal Reserve Bank of Cleveland found that there was no statistical difference in foreclosure rates between regulated and less-regulated banks, although a local bank presence resulted in fewer foreclosures.

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

I appreciate that scapegoating a law to prevent discrimination is popular with many conservatives that want to avoid the factual effect that lack of credit regulation once again caused a major bubble with disastrous consequence, but the evidence does not support the contention.

 

What is the basis that these are "non-conservative" economists?

What was their explanation for the dramatic economic growth that followed implementation of the "New Deal"?

 

We've been through all this. ALL the liquidity (a huge amount FROM Democrat housing policy) led to price increases in the entire housing market making ALL mortgages MORE likely to default. The idea that Freddie and Fannie DID NOT invest in risky "subprime like" loans is a lie. They invested trillions of dollars in risky loans that might not have been SO risky as to be classified as "subprime" loans (so people like you can avoid the truth, and say "Freddie and Fannie did not invest in subprime loans"), but those risky loans were made just the same. Those loans probably would not have been made by the private sector without Freddie and Fannie wanting to buy them. When did I EVER say Freddie and Fannie made invested in "subprime loans?" They plenty invested in low to moderately priced mortgages, and lowered their standards so people with poor credit could get the loans. People with GOOD credit don't want to buy low income housing!

Again, if Freddie and Fannie made such sound investments why did they BOTH collapse? Why did they collapse at a HIGHER RATE (100% since BOTH of them collapsed following the SAME Democrat dictated business plan) than other mortgage companies?

"At Thursday’s Senate Banking Committee hearing on the future of Fannie and Freddie (the GSEs), Senator Menendez asked Edward DeMarco, the acting director of the Federal Housing Finance Agency what role the GSEs played in the housing crisis. Mr. Demarco responded that both had significant and active roles in the subprime private mortgage backed securities (PMBS) market. He added that with respect to the purchase of whole loans, both GSEs purchased substantial volumes of loans with subprime characteristics, even though neither classified them as subprime at the time. Mr. DeMarco indicated that he would need time to get back to Sen. Menendez with a detailed answer to his question.

I am pleased to be able to provide both Sen. Menendez and Mr. DeMarco with the results of my research regarding the Senator’s question.

Below is a table setting forth the GSEs’ subprime loan and securities purchases (regardless of their initial classification)":

http://www.frumforum.com/wp-content/uploads/2009/10/gse_loan_and_security_purchases.jpg​

 

1) Bush (Mr. Ownership Society) was not a Democrat

2) Price increases were caused by speculating the housing market.

Who said they did not?

F/F were losing market share big time to financial institutions in the subprime market. So while they were late getting into the game, F/F was big time into the subprimes when the speculative bubble popped.

 

Sure, but the fed is not the only cause for our economic problems.