the fed, the great depression

[haaaylee]

i have a friend who when i say "we've only had the federal reserve since 1913" she goes " well we needed it to fix the great depression."


now, i'm no expert on either so i'd like some insight on how to address this.

thanks.

 

[forsmant]

The Great Depression happened in 1929. The Great Depression? What was so great about it? Shouldn't we call it the Worse Deppression? Oh well.

 

[SevenEyedJeff]

I think the Fed had more to do with creating the Great Depression than fixing it. The Fed is just one of the ways the international bankers started to take control of this country economically. With every crisis they create, the solution involves them taking even more control.

The New Deal was the given solution to the Great Depression, and all it did was get everyone dependent on the government.

Incidentally, did you ever hear this quote by Thomas Jefferson:

Thomas Jefferson: "If the American people ever allow the banking system to control their money, first by inflation, then by deflation; their children will one day wake up homeless on the continent their fathers conquered."

Google this - u will find it an actual quote by T.J., one of the Founding Fathers - they were truly geniuses ahead of their time.

 

[ConstitutionFTW]

Not to mention the Great Gold Seizure as part of The New Deal:

The monetary system of the United States at the time of the Depression could not sustain inflation very long because the country was on a gold standard. If people sensed that the government was printing too many paper dollars, by law they could redeem those dollars from the government’s store of gold. Moreover, gold coins circulated along with silver dollars, half-dollars, quarters, and dimes.

If people were exchanging their dollars for gold, then the government’s own gold supply would be diminished. Since the gold standard included requirements that the country’s money supply have at least a 40 percent gold backing, a drain on gold reserves would have forced the government to stop printing so many dollars. Therefore, the plans of the New Dealers ran headlong into the reality of the gold standard and its check on inflation.

Thus, early in his presidency, on April 5, 1933, Roosevelt signed Executive Order 6102, which ordered people to turn in their gold to the government at payment of $20.67 per ounce. While there were some exceptions for dental use, jewelry, and artists and others who used gold in their jobs, most people were not covered. (Individuals could hold up to $100 in gold coins, but the government confiscated the rest.) Furthermore, the president’s order nullified all private contracts that called for payment in gold, something that led Sen. Carter Glass of Virginia to declare that the whole thing was “dishonor.”

Roosevelt based his order on the 1917 Trading with the Enemy Act, which gave the president the power to prevent people from “hoarding gold” during a time of war. Of course, the United States was not at war in 1933, but Roosevelt claimed that it was a “national emergency” and Congress and the courts meekly bowed to the executive.


http://www.lewrockwell.com/anderson/anderson154.html

 

[Mises]

i have a friend who when i say "we've only had the federal reserve since 1913" she goes " well we needed it to fix the great depression."


now, i'm no expert on either so i'd like some insight on how to address this.

thanks.

The Federal Reserve was THE cause of the Great Depression. Because the entire nation was tied to a centralized, inflationary bank the easy credit pumped into the system throughout the twenties stimulated malinvestment. That is to say, that producers and entrepreneurs were enticed by the easy credit to expand operations when there was no basis for capital investment in the economy (i.e. savings).

In a free market, the amount of loanable funds is determined by the level of savings. The supply of savings and the demand for loans produces the market price of money, or the interest rate. By printing money the Fed was creating loanable funds without a real increase in savings rates. Since consumer preferences were to spend instead of save for future consumption, there was no longterm demand for the expansion (boom) created by the Fed. As such, all of the economic expansion during the twenties (especially in the higher order capital goods markets) ended up being a poor allocation of resources. The growth of the economy could only be sustained through further expansion of the money supply, but at the risk of high levels of inflation.

That's the rub, to continue the boom the Fed would have to keep the rates low and pump money into the economy. But they can't do it forever because of the risk of hyperinflation. When they finally choke off the credit, there is a massive correction (deflation) in the money supply, and the economy goes into a tailspin until all the malinvestment is liquidated.

The same thing is happening in the housing market right now, to a lesser degree.

Tell your friend that the Fed was implemented in 1913 under the guise of preventing calamities like the banking crisis of the 30s. It's track record speaks for itself.

When the government tries to manipulate interest rates and the money supply, the result is inflation.

For a more informative survey, look up Murray Rothbard's America's Great Depression to get an idea of just how extensive the inflation of the 1920s was.

 

[Leslie Webb]

A depression is a rise in unemployment. In other words, the price of labor is too high, so the demand for it falls. Roosevelt and the unions kept wages high in the New Deal years of the 1930's, and there was no significant drop in unemployment from 1932 to 1940. (A book by Benjamin Anderson, Economics and the Public Welfare, gives the exact annual percentages of unemployment for these years, followed by a short tongue lashing on the popular myth that Roosevelt got us out of the Depression. ) Monetary inflation caused by World War II got us out of the Depression. With the inflation the price of labor did not keep up with the prices of goods; in other words, the price of labor went down. A lower price for labor led to greater demand for labor, thus restoring full employment. There were fears of another depression after World War II when all the soldiers came home, but it did not occur because of this adjustment of the supply and demand for labor.

 

[user]

i have a friend who when i say "we've only had the federal reserve since 1913" she goes " well we needed it to fix the great depression."


now, i'm no expert on either so i'd like some insight on how to address this.

thanks.

We needed it to fix the Great Depression??

“Government cripples you, then hands you a crutch and says, 'See, if it wasn't for us, you couldn't walk.'” — Harry Browne

As Mises said, the Federal Reserve caused the Great Depression.

 

[Kludge]

There's a great graph comparing pre-fed inflation to post-fed inflation... I'll try to find and post it

Okay, well, CPI is the best I can do. Consumer Price Index is a rough measurement of what households pay for goods and services, the higher it is, the more the service/good increased in price over years past.