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1929 was not so bad as a recession. We had plenty of those. 1929 was bad in term of how it was handled to exacerbate the problem. The Fed back then drained l
by ww520 10y ago
1929 was not so bad as a recession. We had plenty of those. 1929 was bad in term of how it was handled to exacerbate the problem. The Fed back then drained liquidity out of the economy as a policy. Since then we have learned the lesson. Witness how the Fed handled the 2008 recession by pumping massive liquidity into the economy with QE, which was unheard of before.
- WalterBright 10y agoOne problem in 1929 rarely mentioned is the Fed started inflating the money around 1917, but kept the fixed exchange rate with gold. By 1929, it amounted to a 40% off sale on gold at your local bank. Bank after bank collapsed under the onslaught and this persisted until the government repudiated gold sales and defaulted on the gold bonds. Fixed exchange rates never, ever work out. There's always a massive correction.
- ww520 10y agoThat's a very good point. The gold pegging definitely tied the hands of the Fed back then, as the Fed had to raise interest rate to defend the depletion of gold due to gold redemption.
- jordanb 10y agoThe Fed also had crazy gold requirements. They were required by law to hold a substantial reserve. But since this reserve was statutory it couldn't be used as a "real reserve," there had to be a reserve atop it. As a consequence the Fed felt it had to move extremely aggressively to protect its own balance sheet by tightening up the money supply very quickly.
- Aloha 10y agoWhat made 1929 a heart stopper was the waves of bank failures between 1929 and 1933, people lost faith in the economic system more than anything, that faith alone is what primes the pump of capitalism, without it very very grave and disastrous things happen.