[Ezra Pound]

Originally Posted by GermanBJJ

No, the Fed hasn't admitted as such. The Fed didn't engineer the Great Depression but it didn't do much to alleviate it which caused it to get worse. If there was never a Federal Reserve, the Great Depression would have still occurred. You can't have such massive over-valuation of an asset class with the inevitable re-valuation without having a recession/depression.

Galbraith has a great book called "A History of Financial Euphoria" that documents other historical recessions/depressions that resulted from over-valued asset classes.

Here's how Friedman summed up his views on the Fed and the Depression in an Oct. 1, 2000, interview with PBS:

PBS: You've written that what really caused the Depression was mistakes by the government. Looking back now, what in your view was the actual cause?


Friedman:: Well, we have to distinguish between the recession of 1929, the early stages, and the conversion of that recession into a major catastrophe.

The recession was an ordinary business cycle. We had repeated recessions over hundreds of years, but what converted [this one] into a major depression was bad monetary policy.

[u]The Federal Reserve System had been established to prevent what actually happened. It was set up to avoid a situation in which you would have to close down banks, in which you would have a banking crisis. And yet, under the Federal Reserve System, you had the worst banking crisis in the history of the United States. There's no other example I can think of, of a government measure which produced so clearly the opposite of the results that were intended.

And what happened is that [the Federal Reserve] followed policies which led to a decline in the quantity of money by a third. For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left. And that extraordinary collapse in the banking system, with about a third of the banks failing from beginning to end, with millions of people having their savings essentially washed out, that decline was utterly unnecessary.

At all times, the Federal Reserve had the power and the knowledge to have stopped that. And there were people at the time who were all the time urging them to do that. So it was, in my opinion, clearly a mistake of policy that led to the Great Depression.

Although economists have pontificated over the decades about this or that cause of the Great Depression, even the current Fed chairman Ben S. Bernanke, agrees with Friedman's assessment that the Fed caused the Great Depression.

FRB Speech, Bernanke -- On Milton Friedman's ninetieth birthday -- November 8, 2002

Bernanke:"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. 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.

Best wishes for your next ninety years. "



They not only didn't alleviate it, they literally compounded the problem. Central banks are bad. I can not say it any plainer. So I must respectfully disagree with you. Also I did not use the term engineer and the intentional action I referred to is discussed by the two quoted individuals; Milton Friedman and Ben Bernanke.

I really must disagree with you about there being a great depression without the Fed as does economist Milton Friedman in the above quotations. The Federal Reserve is an external entity. It exists for the sake of profit for its shareholders only. It is not "independent within the government" as is claimed. There are other books on the topic I would urge you to read before you make up your mind.

[ElKarlo]

There has always been a depression whenever there is nothing left to expand. When all the RR lines were laid, after that the world went into a massive depression in the the (?) 1880's.

[SmileyPSU]

Originally Posted by Ezra Pound

They not only didn't alleviate it, they literally compounded the problem. Central banks are bad. I can not say it any plainer. So I must respectfully disagree with you. Also I did not use the term engineer and the intentional action I referred to is discussed by the two quoted individuals; Milton Friedman and Ben Bernanke.

I really must disagree with you about there being a great depression without the Fed as does economist Milton Friedman in the above quotations. The Federal Reserve is an external entity. It exists for the sake of profit for its shareholders only. It is not "independent within the government" as is claimed. There are other books on the topic I would urge you to read before you make up your mind.

Just because the Fed severely screwed up in 1929 doesn't mean that the whole concept of central banks is a poor one. To me, they make perfect sense. Someone needs to be in charge of a country's monetary policy, and who better than the world's leading economists? What other system would you propose?

I would prefer that the Fed be focused strictly on monetary policy and controlling inflation rather than worrying about those things AND unemployment, and I don't like to see them bailing out businesses that make incredibly poor business decisions. However, I appreciate that controlling unemployment and inflation is a balancing act, and I understand that the failures of institutions like Bear Stearns will be more destructive to the country's economy than bailing them out.

The responsibilities of the Fed require it to walk a fine line, and you are always going to be able to find fault in whatever decision they make, but just because they are not able to please 100% of the people 100% of the time does not mean that the Fed should be abolished.

[kartaron]

Originally Posted by Sanin

The stock market crash of 1929, which marked the beginning of the Great Depression of the United States, came directly from wild speculation which collapsed and brought the whole economy down with it. But, as John Galbraith says in his study of that event (The Great Crash), behind that speculation was the fact that "the economy was fundamentally unsound." He points to very unhealthy corporate and banking structures, an unsound foreign trade, much economic misinformation, and the "bad distribution of income" (the highest 5 percent of the population received about one-third of all personal income).
A socialist critic would go further and say that the capitalist system was by its nature unsound: a system driven by the one overriding motive of corporate profit and therefore unstable, unpredictable, and blind to human needs.

-A People's History of the United States

Howard Zinn


Sound familiar? Except now the top .1 percent of the population make 25% of the personal income. We still have that unsound foreign trade, economic misinformation, and unhealthy corporate and banking structures. Even worse now though is the prevalence of credit card debt.

Why not just quote Marx, Zinn just translates the message anyway.

The depression was caused by creeping socialism, progressive taxes and oppressive government intervention. It was held in place for decades by politicians being even more oppressive, restrictive and socialist. It was only relieved by other countries building up a tremendous war debt to the US.

[kartaron]

Originally Posted by Throatpoker

Once again, you should read a little more on this:



Continued here

...and this other little jewel:



Continued here

In order to be truly versed in this whole mess (and god knows I still have a long way to go), you should do a little more studying.

Great post full of accurate information. Too bad so many in here are so unwilling to actually understand the reality.

[GermanBJJ]

Re: Ezra

That's exactly what I said. The Fed didn't cause it but they didn't do anything to stop it. In other words, bad policy.

But neither Bernanke nor Friedman is saying the Great Depression was the result of the Fed trying to crash the economy or trying to bring a depression to enrich bankers or anything like that.

[Jin-Roh]

The Federal Reserve Act of 1913 was designed by the big money interests in this country. (Read The Creature From Jekyll Island.) Considering that the Money Trust wrote the damn thing, don't you think they might have designed it to be in their best interest?

Some of you econ junkies understand a central banking system, have read through its theoretical processes and are convinced it will work, if only they follow the right policies.

In the real world, that power will always, always, always be corrupted. I don't care how good your theoretical system is when its axis is held solely by the trust that men won't behave selfishly.

You might as well deny gravity and walk off the edge of a building.

[SmileyPSU]

It seems like most of the anti-Fed crew would either like to give control of monetary policy directly to the government, abide by some sort of ****llic standard, or allow for competing currencies. All of these ideas sound great until you look at the nuts and bolts of them, and realize that they don't fix anything at all.

"Go to the gold standard, it will prevent the devaluing of our dollar" chant the hippies and the paranoid banking CTers. Awesome, until you realize that the amount mined gold is not constant, and those fluctuations in output will invariably affect the value of the dollar. So, instead of the world's brightest economists deciding what a dollar's worth, we now have miners making that call. Brilliant! Hopefully those miners have a sweet plan for when the time comes when there's not enough gold to represent an entire year's GDP!

"Give the ability to print money to the government, not to some private enterprise that answers to no one," scream the liberals. Nevermind that the Fed, for all intents and purposes, is a government entity...considering how the government fixes everything it touches, it is entirely logical to want our Congressmen, with their vast knowledge of economics, decide this country's monetary policy. Lets put our heads together and think about what else can we do to make government bigger.

"We want competing currencies," yell people whose thoughts have not gone beyond how cool the idea of printing your own money sounds. A system where everyone tries to pay for everything with different "currencies" sounds swell. What problems could arise from this? But I have a better idea, lets just eliminate the idea of currency altogether and go back to bartering! I'm hungry, I've got a pair of Nikes, some paperclips, and a copy of Gears of War. What kind of groceries could I get for that?

[GermanBJJ]

Originally Posted by Jin-Roh

The Federal Reserve Act of 1913 was designed by the big money interests in this country. (Read The Creature From Jekyll Island.) Considering that the Money Trust wrote the damn thing, don't you think they might have designed it to be in their best interest?

I am definitely open to that possibility. But that isn't what Ezra claimed. He claimed that the Fed admitted to doing this and that, which they haven't. That doesn't mean they didn't actually cause it; they just don't admit to causing it (in the engineering-the-crash sense.)

Originally Posted by Jin-Roh

Some of you econ junkies understand a central banking system, have read through its theoretical processes and are convinced it will work, if only they follow the right policies.

In the real world, that power will always, always, always be corrupted. I don't care how good your theoretical system is when its axis is held solely by the trust that men won't behave selfishly.

You might as well deny gravity and walk off the edge of a building.

I think there is a fundamental misunderstanding of what, at base, the Fed is designed to do. The Fed is not designed to stop all recessions, to stop all crashes, to stop all bubbles, etc. There isn't one central banker that will say the Fed has that power. No organization can be designed that can do that. The point of the Fed is to make the crashes, recessions, depressions less serve and to control the supply of money to help create economic growth and stability.

People have difficulty wrapping their heads around alternative outcomes of situations. For example, if there was no Fed, there is a good chance the recent credit market seizure would have yanked down the banking system something awful. Something like we haven't seen in 80 years.

But the Fed stepped in and prevented that. The free-market wouldn't have prevented it. The government wouldn't have prevented it. People think that because markets are unstable then that means the Fed has failed. That's simply not true. Free-markets, by their nature, will naturally become unstable. The Fed's job is to try to take the edge off of that instability and make it sure it doesn't cause a collapse.

So does the Fed work? Yes, it does. That's a fact. That's why almost every major economist in the world supports the Fed as an institution. You can pull out Thomas Jefferson quotes, or Mises quotes or Ron Paul quotes or whoever you want.

But you need to realize the people you keep quoting have no real current economic credibility whatsoever. And if you want to let individuals without any real economic credibility design an economy, be my guest. But don't do it in the country that I live. I don't feel like waiting in line at a soup kitchen any time soon.

[Throatpoker]

Originally Posted by GermanBJJ

I think there is a fundamental misunderstanding of what, at base, the Fed is designed to do. The Fed is not designed to stop all recessions, to stop all crashes, to stop all bubbles, etc. There isn't one central banker that will say the Fed has that power. No organization can be designed that can do that. The point of the Fed is to make the crashes, recessions, depressions less serve and to control the supply of money to help create economic growth and stability.

I've seen America: Freedom to Fascism, and read A LOT of stuff on The Fed, so it's safe to say that I'm really uncomfortable with the fact that we have a cartel of private banks (with no say and power from the citizens) run have such enormous power, and enforce measures that are horribly unconstitutional, especially since all they've done is use that power to constantly devalue our currency in order to fund war endeavors, big government, and socialist models.

People have difficulty wrapping their heads around alternative outcomes of situations. For example, if there was no Fed, there is a good chance the recent credit market seizure would have yanked down the banking system something awful. Something like we haven't seen in 80 years.

Don't you think that the Fed's inflationary actions have had something to do with this whole mess? Through lower and lower interest rates, doesn't that motivate the local banks to take risks with those they lend money to? Also, shouldn't this job be done by Congress altogether?

But the Fed stepped in and prevented that. The free-market wouldn't have prevented it. The government wouldn't have prevented it. People think that because markets are unstable then that means the Fed has failed. That's simply not true. Free-markets, by their nature, will naturally become unstable. The Fed's job is to try to take the edge off of that instability and make it sure it doesn't cause a collapse.

I personally believe that business cycles come because of government interventions, free markets do not reward taking too much risks, when the fed implements keynesian "pillows" in order to protect assets those bankers consider "essential" to the economy, they in turn encourage more risky behavior from other elements (Bear-Stearnes).

So does the Fed work? Yes, it does. That's a fact. That's why almost every major economist in the world supports the Fed as an institution.

I have a feeling that most of those economists are "neoclassical", if not straight socialists. Nowadays, mainstream economics taught in campuses encourage a very relativist view toward the study, so for some reason the experts don't acknowledge the direct relationship between the inflationary foundations of the Fed, and the current crisis we're seeing.

You can pull out Thomas Jefferson quotes, or Mises quotes or Ron Paul quotes or whoever you want.

But you need to realize the people you keep quoting have no real current economic credibility whatsoever. And if you want to let individuals without any real economic credibility design an economy, be my guest. But don't do it in the country that I live. I don't feel like waiting in line at a soup kitchen any time soon.

Well, Mises has been dead for quite a while now, but the man pretty much predicted the woes we're facing, so as a professional economist, whose teachings inspired Nobel prize-winning economist F.A. Hayek, then the man could be considered to have had current economic credibility (even for today's standards and specifics). On the other hand, as member of the Joint Economic Committee, the Committee on Financial Services, and having formerly served on the House Banking Committee, it's safe to say that the man knows what he's talking about, especially since he has been an avid student of economics.