Hi Jay -
You asked me before why I am researching the Great Crash of 1929, and the Great Depression of 1930, and I told you that I like to dig, it's my nature.
What I didn't tell you is why I think the digging is worthwhile. As long as I can remember, the question in my mind about the Great Depression was "where did the money go?" The more I dig, the more mystified I get.
It's actually kind of weird.
I've looked at maybe 20-30 books so far. Books written by economists, books written by historians, books written by sociologists, anecdotal histories, oral histories. They go into great detail about the causes of the Great Crash and the aftermath, very simple to understand. Not so different than what we went through last year - people throwing money at anything that moved, valuations got ahead of themselves, the Fed stepped on the brakes, lots of margin calls, some people got wiped out, some people hung on and were under water, some who got in earlier were still ahead but not as far ahead as they were. The economy slowed down, but not alarmingly so.
It's plain as day that everyone thought we were out of the woods, so to speak, in early 1930 - and then it all started to collapse like a souffle when you slam the oven door.
No one really explains why. There's a lot of conjecture. The Fed was too tight, maybe - the gold standard was too restrictive, maybe - high tariffs stopped international trade, maybe - banks started collapsing and that led to a vicious circle of bank collapses, maybe - worldwide deflation of asset values and commodity prices, maybe - maybe, maybe, maybe.
Then the histories pick back up in 1931 or so and everything starts rolling along, easy to explain. We were in a mess and we had to get out of it. I am serious when I say that the histories pick back up in 1931. I am looking at something written in 1931 by the National Industrial Conference Board that tries to explain what happened. There's a chart, "Major Forces in World Business Depression," with 29 countries on the "x" axis and 11 factors on the "y" axis, with marks for which of the factors caused the depression in each of the countries. Suffice it to say that it's a lot of "maybe, maybe, maybe."
Fascinating. Almost as if someone or something very, very big cashed in his/its chips and left the table. Or maybe they're right - a lot of things went wrong all at once. No more or less simple than that.
The US was a creditor nation then - the balance of trade was lopsided the other way - we exported, rather tthan imported, although it wasn't that large a part of our economy. We loaned a lot of money to other countries, which they could only repay in kind. If someone didn't buy their goods, they had no money to pay us back with. Not sure how much of a factor that was - I know that the German government, and large German corporations, borrowed many millions from US banks and financial institutions during the 1920's, and defaulted in the early 1930's, possibly as early as 1930. That's the thread of the story I am working on now.
I don't expect it to be "the answer" but it's a part of the story that hasn't been developed very well, possibly due to the language barrier, possibly because we don't like to think about what happened next in Germany (essentially we financed the Wehrmacht.) Everyone wants to have collective amnesia about that, right, Janko?-g-
One item which is of interest to me is that Hjalmar Schacht, the President of the Reichsbank, takes "credit" for causing "Black Friday" on the Berlin Stock Exchange in 1927. He wanted to curb "gambling with foreign money" at "the Reichsbank's expense" so he "compelled the banks to exercise a drastic curtailment of credits to those of their customers holding securities." He explains that "unfortunately the banks gave notice of this measure without previously coming to an agreement with the Reichsbank and the sensational surprise led to a considerable drop in the prices of securities on the Berlin Stock Exchange on Friday, May 13." Dr. Schacht then claims that it was a good thing. "While I deplored the clumsy manner in which the measure had been carried out, the measure itself was a necessity. It probably contribued to the fact that the Stock Exchange disaster in New York two years later caused less damage on German Exchange that wound have been the case if I had allowed speculation to go unchecked." Schacht, Hjalmar Horace Greeley, Confessions of the "Old Wizard," 1956.
Schact also mentions that he visited the US and paid a call on Roosevelt right before he was inaugurated, and told him that Germany didn't intend to pay the loans off, and Roosevelt told him, "Good! That's the way to treat those Wall Street bankers!"
Just an example of what central planning can do to an economy. No way to predict such things. Dr. Schacht thought very highly of himself and was quite pleased with the way things came out, although he "deplored" the clumsy manner in which others carried out his brilliant plan - clumsy oafs! Isn't that the way it always is? Here in the US I haven't run across anyone willing to take credit or blame for 1929-1930. Of course, one wouldn't expect anyone to actually admit that they screwed up, would one?
I think it's fruitless to try to compare 2001-2002 to 1929-1930. Still not enough info on where the money went in 1930, but enough to know that 1) the US Fed tightened the money supply as much as it could; 2) the US Treasury tightened the money supply as much as it could; 3) foreign investors withdrew their investments from US banks; 4) US investors withdrew currency and put it under the mattress; 5) asset prices deflated, especially land; 6) banks collapsed in the thousands.
We could face 3) and 5). We have other things on our plate, like a negative savings rate, a negative balance of trade, and a rise in energy prices.
Tolstoy said, "Every happy family is alike, while every unhappy one is different in its own way." |
