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You wrote: "this is not called monetization". Monetization is a technical term, and I won't quibble with you over that. However ... You wrote: "it was not
by fexl 15y ago
You wrote: "this is not called monetization".
Monetization is a technical term, and I won't quibble with you over that. However ...
You wrote: "it was not a policy of the Fed."
Yes, the whole phenomenon was baked into Fed policy even at its founding in 1913.
Quote: "We undertook in the Federal Reserve Act (1913), (I) to reduce the reserve requirements of the banks; and (2) to substitute for "gold and other lawful money" as bank reserve, the single item, credit at the Federal Reserve banks, which in turn need be gold-secured only to the extent of 40 percent, which the remaining 60 percent could be commercial paper and United States bonds."
In short, Fed policy allowed banks to operate with less solvency than they had before. This enabled massively speculative loans which would not have been possible otherwise.
- yaakov34 15y agoRobinson is not making a good case here - the Federal Reserve Act was, at the time, seen as strengthening banks by making their reserves more liquid. If Robinson wants to argue that it had the opposite effect, he will need a lot more than his opinion. If he is right, then there should have been fewer bank failures in the decades preceding the FRA; but in fact, history is full of them. The post-1913 banking system functioned well for decades, including during a world war. Obviously it had its weaknesses, but where is the proof that the pre-1913 system would have been better in the same circumstances? Also, he is carping about the wrong thing - he complains that the Fed was only 40% secured by gold, but the Fed is not the entity that failed; the banks did. It wouldn't have mattered if the Fed was secured by pure unobtanium. In short, I'm not convinced by any of this - it's basically just one guy's opinion from 1935.