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To: Ilaine who wrote (231)4/27/2001 10:18:22 PM
From: JF Quinnelly  Read Replies (2) of 443
 
"Where Did The Money Go?"

I think you fail to appreciate the role of 'credit money' in a fractional reserve banking system. It's no mystery where liquidity went as the Depression progressed. There was no deposit insurance, and the Fed failed to act to save failing banks. So whatever deposits were on the books when the banks failed simply ceased to exist. In three years that amounted to 30% of the money supply. The money that disappeared went to Money Heaven.

Another factor reducing the money supply was the public simply withdrawing their money and holding it as cash. Money held outside of banks can't be used to back loans, which is a primary means of increasing the money supply.
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