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That'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 gol
by ww520 10y ago
That'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.