no statistics are available is not true...the Fed member banks all reported the stats regularly. the percentages i mentioned come from these reports via Anderson's "Economics and the Public Welfare".
how did they do it? the same way they're doing it now...with plenty of repos and coupon passes. the raising of the FF rate in late '28 and '29 came too late...by that time the bubble had already acquired a dynamic of its own. US corporations of all stripes were lending money in the NY call market helping it along. who cares about 4,5, or 6% when 20% annual returns are regarded as 'normal'? broad money supply didn't grow as fast in the 20's as nowadays, but 30% growth in 5 years isn't exactly tame either (according to Anderson, broad money grew by 30%, and narrow money by 19% over 5 years).
the stock market boom clearly began before '27, but as these things go, went more and more parabolic as time went on.
you saw the same thing happen in our modern day bubble...when the Fed finally decided to tap on the brakes a bit, the bubble just kept growing at first. besides, there never WAS any appreciable tightening, since the liquidity injections never ceased for a moment.
read Anderson's book, and perhaps Kondratiev's text on the Longwave. also recommended is Rothbard's book on the Great Depression.
the 'nutshell' argument is simply that the Fed's too loose monetary policies during the boom have fostered malinvestment - and as soon as the future demand that entrepreneurs wrongly expected to materialize due to this policy failed to do so, the accumulated debt couldn't be serviced anymore, and the implosion came as a result.
the K-wave plays into this as a theory of the cyclical behavior of prices: the 'autumn' is the disinflation cycle, that lulls the CB into being too loose during what is usually a wild capital investment boom, driven by new technologies. the deflationary 'winter' is the end phase of the downwave, where the autumn's excesses are weeded out. the liquidation stage if you want. |
