Sunday, December 28, 2008

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.

11 comments:

McKoala said...

Speaking of being taken in, you completely sucked me in with that last post... 'oh, no, oh, no, this can't be true...oh, no...these poor people...darn. Suckered.'

Scott from Oregon said...

One wonders if ego inflation "shh! Alan is going to speak!" had anything to do with Greenspan's change of mind?

blogless troll said...

AG: I believe in the prudence of the gold standard and I object to many of the FED's policies.

USGov/FED: How does unlimited power sound?

AG: Sign me up.

Robin S. said...

I'm really not crazy about being run like a lab rat by these guys.
It pisses me off - that rational behavior doesn't get you very far, and irrational behavior, at a high level, occurs cyclically, is renamed and reformed, but still, is the same misbehavior at the expense of the rest of us, and is never learned from.

Sarah Laurenson said...

Interesting quote. But you know he had to say he didn't see it coming. That's how this administration works. Tradition must be upheld.

I have a 1935E silver certificate. It says I can trade it for silver at any time I please. So the dollar bills in 1935 were backed by silver. Not sure when they stopped being backed by anything.

Robin S. said...

Happy New Year, BT, to you and yours! And thanks for being my friend.

writtenwyrdd said...

Alan Greenspan was the financial GOD for around 25 years. I suppose it's fitting to see his feet of clay--before and after the pedestal.

At least we aren't in a full on depression (yet. I hope.)

Sarah Laurenson said...

Ah, BT. Yer the best, man.

Happy New Year!

pacatrue said...

Happy New Year to you as well, Mr. Arational Inexuberance. Can I just call you Anti-Span?

Diesel said...

I'm still backing the marijuana standard.

david mcmahon said...

Alan Greenspan is about to speak. Behold .....