Well, Tice is right that the discount rate was cut. Unfortunately, and I don't think they had any way of knowing this, the rate cuts did not keep up with actual deflation.
Buying government securities doesn't help when banks are unwilling to discount commercial paper and corporate bond rates skyrocket - Baa corporate bonds paid 12% in early 1932. The Fed. bought government bonds at the end of 1931.
The Federal Reserve said they were pursuing a loose money policy, and so does Tice. I prefer to believe Milton Friedman, and the other "economists and Wall Street pundits." But I think the matter was probably out of the power of the Federal Reserve to control, because I think - and this is a working hypothesis, subject to revision - that the main culprits were overproduction, tariffs, unproductive foreign loans, bank defaults, asset deflation, and a breakdown in the foreign exchange system.
From the peak, in October, 1929, to the trough, in April, 1933, the stock of money as defined by Friedman and Schwartz declined by 30%, from $57 billion to $40.5 billion. Money stock, by their definition, is
1. Currency held by the public
2. Demand deposits at commercials banks.
3. Time deposits at commercial banks.
4. Deposits at mutual savings banks.
5. Deposits in the postal savings system.
Maybe there was nothing the Fed could do. But they definitely did not try to print their way out of it. Stomping on the stock market appears to be a stupid idea. |
