What Caused The Great Depression?

Discussion in 'Financial Cents' started by Minuteman, Mar 21, 2008.

  1. Minuteman

    Minuteman Chaplain Moderator Founding Member

    Bernanke: Federal Reserve caused Great Depression

    Despite the varied theories espoused by many establishment economists, it was none other than the Federal Reserve that caused the Great Depression and the horrific suffering, deprivation and dislocation America and the world experienced in its wake. At least, that's the clearly stated view of current Fed Chairman Ben Bernanke.

    The worldwide economic downturn called the Great Depression, which persisted from 1929 until about 1939, was the longest and worst depression ever experienced by the industrialized Western world. While originating in the U.S., it ended up causing drastic declines in output, severe unemployment, and acute deflation in virtually every country on earth. According to the Encyclopedia Britannica, "the Great Depression ranks second only to the Civil War as the gravest crisis in American history."

    What exactly caused this economic tsunami that devastated the U.S. and much of the world?

    In "A Monetary History of the United States," Nobel Prize-winning economist Milton Friedman along with coauthor Anna J. Schwartz lay the mega-catastrophe of the Great Depression squarely at the feet of the Federal Reserve.

    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.

    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.

    At a Nov. 8, 2002, conference to honor Friedman's 90th birthday, Bernanke, then a Federal Reserve governor, gave a speech at Friedman's old home base, the University of Chicago. Here's a bit of what Bernanke, the man who now runs the Fed – and thus, one of the most powerful people in the world – had to say that day:

    I can think of no greater honor than being invited to speak on the occasion of Milton Friedman's ninetieth birthday. Among economic scholars, Friedman has no peer. …

    Today I'd like to honor Milton Friedman by talking about one of his greatest contributions to economics, made in close collaboration with his distinguished coauthor, Anna J. Schwartz. This achievement is nothing less than to provide what has become the leading and most persuasive explanation of the worst economic disaster in American history, the onset of the Great Depression – or, as Friedman and Schwartz dubbed it, the Great Contraction of 1929-33.

    … As everyone here knows, in their "Monetary History" Friedman and Schwartz made the case that the economic collapse of 1929-33 was the product of the nation's monetary mechanism gone wrong. Contradicting the received wisdom at the time that they wrote, which held that money was a passive player in the events of the 1930s, Friedman and Schwartz argued that "the contraction is in fact a tragic testimonial to the importance of monetary forces."

    Brokor likes this.
  2. Jonas Parker

    Jonas Parker Hooligan

    It's great that "Helicopter Ben" is willing for the Fed to accept the blame for the Great Depression. Unfortunately, he's wrong. The Stock Market Crash of 1929 and the ensuing depression was primarily caused by greedy brokerage houses selling stocks on "margin" - essentially lending money to buy stocks to people unworthy of credit. When the stock market crashed, obliterating billions of dollars of "paper assets", the credit market contracted, limiting expansion of business, and forcing more and more businesses out of business and more and more employees out of jobs...
  3. ghrit

    ghrit Bad company Administrator Founding Member

    I detect only a minor difference between credit extended on margin, and mortgages issued to non credit worthy mortgagees. The net is the same, too much debt and too little potential for repayment. Sorta points to troubled financial waters ahead. Doc Ben knows the disease, the question remains, what he will prescribe, and more to the point, will it work?
  4. RouteClearance

    RouteClearance Monkey+++

    I only hope I am wrong, but looking at the current situation with the subprime market being composed of around One Trillion dollars of debt that will be impossible to payback completely, and with a derivative market that is made up of aroud 650 Trillion dollars, all I can see is a financial cancer that not only takes down the US economic system, but the rest of the world with it. We have lived the good life to long, and have become complacent, fat and lazy. And we wounder why the US is no longer the nation that everyone else aspired to be.
  5. franks71vw

    franks71vw Monkey+++

    +1 only thing different is that we have already experienced in the past and are seeing the symptoms now and can prepare for it. Prepare for the worst aim for the best...
  6. Brokor

    Brokor Live Free or Cry Moderator Site Supporter+++ Founding Member

    The truth is, you can't handle the truth. ;)

    The bankers got everything they wanted on March 6, 1933. Everything else is just icing on the cake.
  7. Tango3

    Tango3 Aimless wanderer

    So we're just along for the ride..(?)I think the infrastructure is what's (wrong/evil) if a particularly greedy robber baron (even a .gov official) is taken out of the picture; somebody just steps up; the system is in place .
    Can't "go to war" against (that) in the common interptretation..
    How do you fix the system.?
  8. RouteClearance

    RouteClearance Monkey+++

    The System far too gone to be fixed, it needs to be completely destroyed, the problem is to many sheeple and not enough patriots that can destroy the system.
  9. ozarkgoatman

    ozarkgoatman Resident goat herder

    Most people that consider themselves patriots don't want to get rid of all the programs from .gov. [beat]

  10. RouteClearance

    RouteClearance Monkey+++

    Arm chair commode wannabe's have never been true patriots to begin with, they give all the lip service, but when push comes to shove, all they do is meld back into the mainstream flock so they can find that guvmint teet to suckle off of, by the way, have you seen the state of fittness these types are in. Pathetic.
  11. NWPilgrim

    NWPilgrim Monkey++

    Whoever controls the credit controls the economy. And the Federal Reserve controls the source of credit. Was it mistaken policy that lead to excessive credit and a resultant Stock speculation bubble in 1929? Or was it intentional crashing of the economy through loosening of credit that created a field of very cheap companies to snatch up in 1930? And socialist programs and control of individuals (dependency on government and restrictions of 2A rights as never before) in 1934?

    Not everyone lost money in the 1929 crash. Some elitists such as Joseph Kennedy used his illegal Prohibition fortune to purchase many devastated legitimate businesses for pennies on the dollar the next year.

    Was it just bad judgment again in the 1970s and early 1980s that created loose credit once again, but this time for savings & loans to speculate in real estate? I think it was fortunate that we had Reagan as president rather than a typical globalist like FDR. Reagan did not respond by taking advantage of a financial crises to push through draconian socialist programs or regulations.

    Was it just mistaken policy once again in the 1990s and 2000s that loose credit was again flooding the market, this time for consumer credit and mortgages? At is it coincidental that we are seeing once robust financial firms, and perhaps sson even banks, suddenly turn from being worth billions to being snatched up for pennies on the dollar by both large US companies and now even Russian, Japanese, Chinese and Middle East countries?

    It sure seems handy that ever few decades the Federal Reserve opens the credit spigots enough to crash an entire industry, people are devastated and gladly turn to Uncle Sam for a hand and give up freedoms in the bargain; and that certain large companies are able to snatch up bargains when no one pays attention.

    Probably just a coincidence.[booze]
  12. ozarkgoatman

    ozarkgoatman Resident goat herder

    Agreed, but there are not enough people who truely want the Constitution to be restored. I would go as far to say theres not likely more than 1% of the people on this board that want the Constitution to be fully restored.

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