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To: Wyätt Gwyön who wrote (49037)	2/17/2001 11:38:36 PM
From: Steve	Respond to of 77400

Mucho, You've gotten the New York Fed Discount Rate data. The Fed raised the discount in response to market rates (which were responding to Britain leaving the Gold Standard in early 1931) but could have bought government securities more aggressively during this time to increase liquidity. There were discussions in Washington at this time about how the NY Fed was acting too aggressively in adding liquidity and the NY Fed governor agreed and pulled back somewhat in his aggressiveness in adding liquidity independently of the FOMC. Here are the data: 1929 Aug. 9 6.00 Nov. 1 5.00 15 4.50 1930 Feb. 7 4.00 Mar. 14 3.50 May. 2 3.00 Jun. 20 2.50 Dec. 24 2.00 1931 May. 8 1.50 Oct. 9 2.50 16 3.50 Notice that between 5/8/31 and 10/16/31 the Fed raised rates by 200 basis points. The markets had been signaling a liquidity crisis all year long and they finally collapsed to a 10 year trading range between 70 and 110. The other relevant data are: 1932 Feb. 26 3.00 Jun.24 2.50 1933 Mar. 3 3.50 Apr. 7 3.00 May. 26 2.50 Oct. 20 2.00 1934 Feb. 2 1.50 1935-36 no change 1937 Aug. 27 1.00 1938-41 no change 1942 Oct. 30 0.50 1943-45 no change 1946 Apr. 25 1.00 Notice that money remained relatively tight during the critical years of the banking crises where the money stock because of massive bank failures declined. Without supporting structures total liquidity declined as the US central bank acted like it was a commercial bank and tried to preserve its capital by keeping interest rates high. During this time because of the decline in the money stock a huge deflation occured making the official discount rate in real terms historically high for the time.