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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Don Lloyd who wrote (6150)	7/21/2001 7:50:40 AM
From: Ilaine	Read Replies (1) \| Respond to of 74559

Fair enough, but that's a line of credit - I don't borrow it until I spend money using the card. I don't think Richebacher wasn't talking about lines of credit, I think he was talking about borrowed money. Anyway, I wanted to give Mike a chance to come up with an explanation as to how credit-money could be expanding but the money supply not be expanding. One good explanation might be that the Fed was mopping up the credit-money. I like that explanation because it's consistent with the hypothesis that the Fed was deliberately pursuing deflationary monetary policies. I suspect that the reason Mike doesn't like it, and Richebacher doesn't advance it, is because it's inconsistent with the accusation that the Fed was deliberately pursuing an easy money policy, thereby laying blame for the entire boom and bust cycle on the Fed. But I think the record shows that the Fed had an easy money policy for a period of time in 1924, to ease a cyclical downturn, and again for a period of time in 1926, to ease a cyclical downturn, and for a very short period - about three months - at the end of 1927, to help the Bank of England maintain the gold standard at pre-war parity. The Fed started pursuing a tight money policy in January, 1928. As recent events have shown, we don't need the Fed to create credit money, and they didn't back then, either. A ton of money was printed for WWI, and a ton of money was loaned by US citizens abroad, in the form of bonds. Some of the bonds were never repaid, but some of them were called in 1928-1929, to put the money in the stock market, which was regarded as safer. It was calling the loans to Germany and refusing to lend more that triggered the Great Depression in Germany - that, and a huge reparation payment that wiped out their foreign exchange reserves. Massive defaults on bond payments wiped out a lot of people in the US - I still don't have the book but I've seen it quoted as 600,000 US investors wiped out due to bond defaults. Also, France did not go back onto the gold standard until 1928, but when it did, a lot of gold got sucked into France - and there really was not enough gold to maintain prices at pre-war parity. Not that anyone was actually trying to keep commodity prices up when the gold shortage started - given the choice between deflation and devaluation, they chose deflation. A bit more complicated than simply pointing the finger at the Fed. A bit more complicated than saying that people simply chose not to spend their money. You can't ignore exogenous causes.