QFLC #2

In honor of the forgotten words of dead mostly dead (looking) people everywhere, today we continue our weekly casual examination of:

Quotes

From

Last

Century...

Century...

Century...

(That's an echo.)

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates.

The "Fed" succeeded: it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed.

--from the essay "Gold and Economic Freedom" by Alan Greenspan, 1966 (wherein he argues FOR the gold standard)

NOTE: This was 20 years prior to him being named Chairman of the Federal Reserve Board. 30 years prior to the excess credit which his Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. And nearly 35 years prior to the same thing happening in the real estate market. Cast in this light, his "Oops, I failed to detect a flaw in the model that defines how the world works" excuse somewhat breaks down.