The Myth of FDR

Posted by George Regal Categories: History, US Economy

The Great Depression was brought about as a result of monetary inflation (68%) from 1921-1928. (See: What is the Federal Reserve Doing?) There were other factors involved, but this was the primary factor. This was mostly the result of “easy credit” (a recurring theme isn’t it?). Credit expansion, as we have seen again, leads to malinvestment. John Maynard Keynes, the father of Keynesian Economics, called Federal Reserve policy (1921-1928) a triumph in currency management. Hey, good call John!  It’s amazing that Keynesian Economics is still with us.

The inflation fueled boom and resulting depression are often blamed on Herbert Hoover and his laissez-faire policies. Nothing could be further from the truth and we need to look no further than Hoover’s words from the 1932 presidential campaign.

“We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic.”

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What Is The Federal Reserve Doing?!?!

Posted by George Regal Categories: Editorials, US Economy

When economist Milton Friedman celebrated his 90th birthday, Ben Bernanke, the current Federal Reserve Chairman, said the following:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve System. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.

We did it!  Quite an admission isn’t it?  Well, they did it again!  Anatomy of a Crisis highlighted the policies and practices that lead to the housing bubble, and in this column I’ll discuss how it was the Federal Reserve (the FED) that made the bubble possible in the first place. The FED doesn’t manipulate the money supply directly,at least not very often, they do it by setting interest rates, altering reserve requirements (the amount of money banks must keep on deposit with the FED), and serving as a safety net for the fractional reserve banking system that I briefly discussed in “Big Trouble in Little Washington”. A fractional reserve system that couldn’t expand deposits to the extent that they do without the FED.

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