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A monetarist without a leg to stand on...,
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This review is from: A Monetary History of the United States, 1867-1960 (National Bureau of Economic Research Publications) (Paperback)
Professor Friedman argues that the Great Depression was caused by the Fed's reluctance and ultimate failure to provide sufficient liquidity to the fiancial system in order to save it from collapse. This is pure folly, as the Fed cut rates from 6.0% to 1.5% during 1929-31, during a time when the money supply did not decline until late 1930 and early 1931, while the stock market fell nearly 75%.
While some counter with the argument that Smoot-Hawley Tarrif Act of 1930 (which took effect in mid-1931) caused the Depression, nations such as Argentina, Australia, Canada, New Zealand, Portugal, the Dutch East Indies, and South Africa all began raising tariffs in 1928-29 against a backdrop of commodities price deflation and a collapse in currencies.
I am sorry, Professor Friedman, the Great Depression was caused by misinvestment, excessive credit expansion, and structural collapse in the international credit system. Sound familiar (October 1998)?
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Showing 1-5 of 5 posts in this discussion
Initial post: 5 Nov 2008, 22:07:17 GMT
the monetary base (i.e. the money that the fed has direct control over) shrank 5% between April 1928 to October 1930, so to assert that the money supply didn't decline until late 1930 is simply wrong. m2 began to decline in 1929, too.
Posted on 15 Oct 2009, 09:33:07 BST
Last edited by the author on 15 Oct 2009, 09:33:31 BST
Now in October 2008 do we still think that cutting rates alone is sufficient to inject liquidity into the system? Did Bernanake's critisism of Japan's Central Bank make no difference to this flawed proposition? Bernanke's own request for the 700 number while the rates were at 0.5%?
Posted on 30 Jan 2011, 18:07:33 GMT
I. Chaudhry says:
You miss the point of the book: it's not so much about the causes of the contraction but more so about the failure on the Fed's part to act in response to the contraction. In terms of causes there is no accepted belief, indeed some economists believe that the main reason for the Depression and its length is the Gold Standard - there is evidence to suggest this is so. Unfortunately with quantitative easing it is very difficult to prove whether it works or not. However many of us give it the benefit of the doubt due to recent recovery periods in the US and UK (although the next few months will prove very interesting)
In reply to an earlier post on 3 Feb 2013, 11:55:45 GMT
Nope, the reason for it is the controls that were placed on the economy that stopped it from adjusting. The gold standard wasn't responsible for the credit boom in the US.
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A Monetary History of the United States, 1867-1960 (National Bureau of Economic Research Publications)(3 customer reviews)