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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Sam Sara who wrote (81156)3/15/2001 8:25:15 PM
From: pater tenebrarum  Read Replies (5) of 436258
 
yes, the Fed dropped rates at warp speed after the bursting of the 1920's bubble - and it didn't help one bit.
as mentioned before, there is a difference between the effect monetary policy has after a huge speculative asset and credit bubble has burst (note that the ancillary credit and real estate bubbles are only beginning to show some strain - they haven't joined the NAZ yet, but will eventually) and the effect it has in a more typical, cyclical environment.
the reason is that the imbalances that have been created during the boom (which in turn owed its existence to a way too loose monetary policy while it was in full swing) are simply too great to be fixed with even more monetary (or fiscal for that matter) stimulation.

the parallel to a flight out of the dollar nowadays was the increasing loss of gold in '31. the Fed was forced to raise rates from 1,5% in late '31 to 3,5% (it was only very temporary) to stop dollars from coming home and being exchanged for gold, in spite of the by then raging depression.

btw., Hoover is nowadays described as having erred with his fiscal prudence in the early 30's, but the semi-socialist Roosevelt's activities did absolutely NOTHING to end the depression either. EXCEPT for his decision to enter WW2 - a big war was needed to end it.
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