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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: Joseph G. who wrote (6836)	11/2/1997 1:44:00 PM
From: Zeev Hed	Read Replies (2) \| Respond to of 18056

I think we are talking about two different periods. At the onset of the "financial" accident (the crash) in 1929, there was no perception and urgency that a deeper problem is brewing and no concerted action to stem the cascading effects into the economy. Yes interest rate where lowered by .5% steps a number of times, but that was when "no one" was left to borrow. The rate responded to lack of borrowing rather then induced borrowing and liquidity expansion. It took a change in in Government to realize that the fiscal policy was too tight and that under these circumstances the joys of a balanced budget are a luxury. Once the avalanche was set in motion, the house of cards (built amongst other things on extremely heavy leverage with 10% margin) had to come down and then nothing but write off of bad debts could clean the table for the next expansion. Apart of few islands of heavy derivative activities, we do not have that kind of leveraged situation right now. I think Warburg did understand what was going on, but he could not persuade Hoover that a multiprong action (both monetary and Fiscal) was required. I think that it was a fear of such an accident that got him and few others to get the Federal Reserve System into being in the first place, but I will let historian comment on this. Zeev Zeev

To: Joseph G. who wrote (6836)	11/2/1997 4:31:00 PM
From: Tommaso	Respond to of 18056

Joe, as you know, private gold was confiscated, the price of gold was raised, but the dollar continued to be backed by gold at a fixed ratio, so that for international transactions the US remained on a gold standard until Nixon welshed on it. The tie to gold was not the only thing that caused the money supply to contract, but it certainly helped. Cash money appreciated in value (purchasing power)almost the way stock had before--but I needn't tell you this. After WWII the US had so much of Europe's gold that what dollars could get you there was incredible--on into the early 1960s. I admit that I never have been quite clear as to what Milton Friedman thought the fed could do to force the money supply to expand when all the bank credit was collapsing. Literally print more money I guess. Which began to happen in a big way after Pearl Harbor.