Not letting the contraction take place is what drags out the process, right? If Hoover hadn't intervened wouldn't the Great Depression have only lasted a year or two?
1. The Great Depression lasted as long as it did, not because of any failed policy of HH, but because of a grievous miscalculation on the part of the Federal Reserve.
2. No. According to Friedman (who WAS a genius) the ONLY thing that causes a prolonged recession or depression is a monetary contraction.
Just to clarify,
many of the things Hoover did were actually great policies to enact during a severe down turn. He greatly increased public works projects, which injected cash in to the system. He set up unemployment assistance, and (as much as i loathe it) he increased subsidy to agriculture.
The one thing he did which was a bit off the mark was raising tarrifs on production. That was just a bit silly. It was like he thought adding gold coin to the treasury was going to help. That is a mercantilistic notion that is just flat wrong.
The real problem that America had to deal with was that the Federal Reserve failed to increase the money supply through lowered rates and emergency lending policies to distressed banks. Yeah, I said it, the Fed should have engaged in more bailout. Afterall, isn't that why it was created?
Anyhow.
???
If I was to smile and I held out my hand
If I opened it now would you not understand?
1. The Great Depression lasted as long as it did, not because of any failed policy of HH, but because of a grievous miscalculation on the part of the Federal Reserve.
2. No. According to Friedman (who WAS a genius) the ONLY thing that causes a prolonged recession or depression is a monetary contraction.
I like Friedman, but I'm not sure I believe that. All previous depressions had monetary contraction, right? But since wages as well as prices were allowed to fall, these previous depressions ran their course in a relatively short period. Hoover's involvement with labor is what led to inflexible wage rates making things much worse, did they not?
The market is failing again as i type.
About an hour ago it had an attempted (and failed) breakout to the upside after weak bottom was put in this morning.
After the up move failed, she broke down pretty hard.
We are setting new short term lows right now.
I like Friedman, but I'm not sure I believe that. All previous depressions had monetary contraction, right? But since wages as well as prices were allowed to fall, these previous depressions ran their course in a relatively short period. Hoover's involvement with labor is what led to inflexible wage rates making things much worse, did they not?
Dmitry,
I'm not really sure there is a way to test your assertion.
This question of Hoovers interference with wages (and therefore the employment rate, you seem to suggest) is impossible to seperate from the other more powerful influence -- the Fed's monitary policy.
When you say "making things much worse", it is akin to the following metaphor. I go up to a clothesline with a blowtorch and set all the clothes on fire from the bottom. My friend then walks along the line fanning the flames.
Now if someone comes up and makes the posit, "well your friend was fanning the flames, that is what made things much worse", how are we to determin the truth of that statement? The real clear cause of the fire was the fact that i walked along the line with a freaking blowtorch.
The failure of the Federal Reserve to lower rates and infuse the market (and failing banks) with cash is what caused the depression to be so severe. The fact that we had a gold standard was also a major stumbling block. We had a REAL "leveraged" situation with REAL fractional reserve lending (as opposed to the current situation, where the "fraction" is ZERO) and instead of adding to the total banking reserves, the Fed SUBTRACTED 30% from it!
SINCE YOU BROUGHT UP UNEMPLOYMENT RATES:
[Well, indirectly ... Since stating that Hoover's causing "inflexible wage rates" i think is really trying to imply that Hoover kept unemployment unaturatly high because of an interference with the market.]
Friedman was also pretty adamant that the "dual mandate" provided The Federal Reserve is simply ridiculous. That mandate is to affect a balance between "price stability" and "full employment".
What Friedman tried to get across was the idea that if you look at history and examine all periods (bull and bear markets) there is NO connection between inflation policy and employment rates. Interest has been low with employment low. It has been high with employment low. Interest has been low with employment high, and high with employment high. It infact appears that 5% unemployment is something of a normal rate of unemployment. Anything above or below that is simply anomalous, and will be adjusted back towards 5% by sheer market forces. THEREFORE Friedman was insistant that the Fed need NOT consider employment rates while making its policy decisions. He argued that they should simply pay attention to the one thing they really do control, namely inflation. If they simply would continue to gradually expand the money supply, all would be well.
However, Friedman was also smart enough to recognize the REAL problem, which was that the Fed was NOT the government, and that it should not have a monopoly on the supply of the all important commodity known as "money".
I have to disagree with him on one thing though, and that is the idea that the money supply should be outright privatized -- especially given the current inability of consumers to determine up from down with relation to what is and what is not a good deal, or what is and what is not viable. Given this, the idea of forcing the consumer to determin by himself (or even with the help of "analysts" or "ratings agencies") who is the most stable (non-inflationary) and secure private seller of "money" simply holds no water.
I say restore the power to print money TO THE PEOPLE!
Put it in the hands of congress, and force the ELECTED officials to determin the proper supply of money. If the get it wrong, the people have a much better chance of understanding what happened and who to blame. "Oh you voted to print 3 trillion new dollars and devalue my savings by 1\3rd? Fuck you! You're out of there!"
If I was to smile and I held out my hand
If I opened it now would you not understand?
The failure of the Federal Reserve to lower rates and infuse the market (and failing banks) with cash is what caused the depression to be so severe. The fact that we had a gold standard was also a major stumbling block. We had a REAL "leveraged" situation with REAL fractional reserve lending (as opposed to the current situation, where the "fraction" is ZERO) and instead of adding to the total banking reserves, the Fed SUBTRACTED 30% from it!
Does that mean you think we should've left the gold standard even earlier than we did, or do you just mean it was a stumbling block for the Federal Reserve, because I thought you liked the gold standard?
Does that mean you think we should've left the gold standard even earlier than we did, or do you just mean it was a stumbling block for the Federal Reserve, because I thought you liked the gold standard?
Heh.
Hey fellow traveler!
Well,
actually i think the answer is yes AND no.
In that instance i was NOT arguing against the gold standard.
All i was saying was the nature of the system of that time was based in an empirical concept of finite money supply. We intended to honor each "dollar" as a REAL asset, directly tradeable for an actual gold coin. The fact that the "leverage" in our system was underpinned at the end of the day by a real OWED asset (gold) made it all the more vulnerable.
One dollar in gold was tied to ten "dollars" in print. Ten dollars in print were tied to one hundred dollars in loans. If any of those 100 dollars in loans were to default, there could potentialy be a huge scramble for that one underlying dollar in gold.
Without a gold standard, all that would be left to fight over is how fast the Federal Reserve was going to print up more "money" and which bank it would loan out to first, and cheapest.
See?
Now,
as far as my support of the gold standard,
i'm not really sure what to say these days.
The more i contemplate the tradeoffs between a truly government owned fiat printing press (restoring the right to people vis a vis the congress and treasury) and having a treasury backed by gold, the more i realize that on some level they are equally fallacious.
I know Friedman was rather ardent in his support of the gold standard. Equally our forefathers and founding fathers sure seemed to understand and warn against the dangers of fiat money.
Honestly, i think the answer is probably a bit of column A, and a bit of column B.
Clearly the constitution no where states that congress has the SOLE right to coin money. And further, it specificaly forbids the states to make anything but gold and silver LEGAL TENDER.
And i think this is where the answer lies.
Competing currency (just like Ron Paul was suggesting) seems to be the most honest answer.
With competing currency, the people (via the CONGRESS, and not the FED) would have the right to determine the proper amount of fiat currency to be circulated in the market. The people would ALSO have the right to seek out competing sources of exchange on the market.
That means that private banks or issuers could supply the market with other currency ... backed or fiat (at the issuers discretion), and the market would be responsible for arbitrating the values. Consumers would be responsible for knowing the risks involved with whichever medium of exchange they so favored.
The people could choose between currencies that either were fiat or were backed by gold. Sure, gold is cumbersome. That is why the people would have a federaly accepted fiat currency (unencumbered by the burdens of retaining, accounting for, and exchanging commodity reserves)
The kicker is the
"No State shall [...] make any Thing but gold and silver Coin a Tender in Payment of Debts"
clause in Article I Section 10.
And the point here is that the current ILLEGAL "legal tender" law required EVERYONE to accept the US Dollar (NOT SILVER, NOT GOLD) for any and all payments AND for taxes!
If the people were NOT forced to use (intrinsicaly) worthless paper, they would be at least free to contemplate what has value, and what does not.
The two (fiat, gold standard) are not mutually exclusive, because the (relative) scarcity of gold means that people would be more than willing to still accept fiat currency for payment, provided they had faith in the issuing institution! !! !! !
The current monitary crisis is being deeply aggrevated by the fact that giant institutions and players in the market no longer have any faith in the issuing institution behind the USD, and they are moving out of it. This puts an UNFAIR BURDEN on the US PEOPLE who are literally "left holding the buck", which they are ILLEGALY FORCED to use, despite the provisions laid before them in their own constitution.
If I was to smile and I held out my hand
If I opened it now would you not understand?
The market is failing again as i type.
About an hour ago it had an attempted (and failed) breakout to the upside after weak bottom was put in this morning.
After the up move failed, she broke down pretty hard.
We are setting new short term lows right now.
SP 1270
DOW 11371
Dmitry,
I'm not really sure there is a way to test your assertion.
This question of Hoovers interference with wages (and therefore the employment rate, you seem to suggest) is impossible to seperate from the other more powerful influence -- the Fed's monitary policy.
When you say "making things much worse", it is akin to the following metaphor. I go up to a clothesline with a blowtorch and set all the clothes on fire from the bottom. My friend then walks along the line fanning the flames.
Now if someone comes up and makes the posit, "well your friend was fanning the flames, that is what made things much worse", how are we to determin the truth of that statement? The real clear cause of the fire was the fact that i walked along the line with a freaking blowtorch.
The failure of the Federal Reserve to lower rates and infuse the market (and failing banks) with cash is what caused the depression to be so severe. The fact that we had a gold standard was also a major stumbling block. We had a REAL "leveraged" situation with REAL fractional reserve lending (as opposed to the current situation, where the "fraction" is ZERO) and instead of adding to the total banking reserves, the Fed SUBTRACTED 30% from it!
SINCE YOU BROUGHT UP UNEMPLOYMENT RATES:
[Well, indirectly ... Since stating that Hoover's causing "inflexible wage rates" i think is really trying to imply that Hoover kept unemployment unaturatly high because of an interference with the market.]
Friedman was also pretty adamant that the "dual mandate" provided The Federal Reserve is simply ridiculous. That mandate is to affect a balance between "price stability" and "full employment".
What Friedman tried to get across was the idea that if you look at history and examine all periods (bull and bear markets) there is NO connection between inflation policy and employment rates. Interest has been low with employment low. It has been high with employment low. Interest has been low with employment high, and high with employment high. It infact appears that 5% unemployment is something of a normal rate of unemployment. Anything above or below that is simply anomalous, and will be adjusted back towards 5% by sheer market forces. THEREFORE Friedman was insistant that the Fed need NOT consider employment rates while making its policy decisions. He argued that they should simply pay attention to the one thing they really do control, namely inflation. If they simply would continue to gradually expand the money supply, all would be well.
However, Friedman was also smart enough to recognize the REAL problem, which was that the Fed was NOT the government, and that it should not have a monopoly on the supply of the all important commodity known as "money".
I have to disagree with him on one thing though, and that is the idea that the money supply should be outright privatized -- especially given the current inability of consumers to determine up from down with relation to what is and what is not a good deal, or what is and what is not viable. Given this, the idea of forcing the consumer to determin by himself (or even with the help of "analysts" or "ratings agencies") who is the most stable (non-inflationary) and secure private seller of "money" simply holds no water.
I say restore the power to print money TO THE PEOPLE!
Put it in the hands of congress, and force the ELECTED officials to determin the proper supply of money. If the get it wrong, the people have a much better chance of understanding what happened and who to blame. "Oh you voted to print 3 trillion new dollars and devalue my savings by 1\3rd? Fuck you! You're out of there!"
I agree that inflation and unemployment are unrelated and that the Fed along with the credit expansion caused by fractional reserve banking actually caused the depression. I think I am disagreeing with why it lasted so long. There was a depression in 1920 that only lasted one or two years and was caused by the same problems; however Harding did not intervene and that depression was short. Hoover was the first president to really start intervening and propping up the bust cycles.
I think I am disagreeing with why it lasted so long. There was a depression in 1920 that only lasted one or two years and was caused by the same problems; however Harding did not intervene and that depression was short. Hoover was the first president to really start intervening and propping up the bust cycles.
The "depression" in 1920 was not followed by a significant and prolonged monitary contraction.
The Fed contracted the money supply over the course of 3+ years.
So we are already out past the time frame which you specified for the 1920 downturn.
That is why i'm saying you can't evaluate what Hoover's ancillary policies did or did not contribute to the length of the situation.
Does that make sense?
If I was to smile and I held out my hand
If I opened it now would you not understand?
In that instance i was NOT arguing against the gold standard.
All i was saying was the nature of the system of that time was based in an empirical concept of finite money supply. We intended to honor each "dollar" as a REAL asset, directly tradeable for an actual gold coin. The fact that the "leverage" in our system was underpinned at the end of the day by a real OWED asset (gold) made it all the more vulnerable.
One dollar in gold was tied to ten "dollars" in print. Ten dollars in print were tied to one hundred dollars in loans. If any of those 100 dollars in loans were to default, there could potentialy be a huge scramble for that one underlying dollar in gold.
Without a gold standard, all that would be left to fight over is how fast the Federal Reserve was going to print up more "money" and which bank it would loan out to first, and cheapest.
See?
Now,
as far as my support of the gold standard,
i'm not really sure what to say these days.
The more i contemplate the tradeoffs between a truly government owned fiat printing press (restoring the right to people vis a vis the congress and treasury) and having a treasury backed by gold, the more i realize that on some level they are equally fallacious.
I know Friedman was rather ardent in his support of the gold standard. Equally our forefathers and founding fathers sure seemed to understand and warn against the dangers of fiat money.
Honestly, i think the answer is probably a bit of column A, and a bit of column B.
Clearly the constitution no where states that congress has the SOLE right to coin money. And further, it specificaly forbids the states to make anything but gold and silver LEGAL TENDER.
And i think this is where the answer lies.
Competing currency (just like Ron Paul was suggesting) seems to be the most honest answer.
With competing currency, the people (via the CONGRESS, and not the FED) would have the right to determine the proper amount of fiat currency to be circulated in the market. The people would ALSO have the right to seek out competing sources of exchange on the market.
That means that private banks or issuers could supply the market with other currency ... backed or fiat (at the issuers discretion), and the market would be responsible for arbitrating the values. Consumers would be responsible for knowing the risks involved with whichever medium of exchange they so favored.
The people could choose between currencies that either were fiat or were backed by gold. Sure, gold is cumbersome. That is why the people would have a federaly accepted fiat currency (unencumbered by the burdens of retaining, accounting for, and exchanging commodity reserves)
The kicker is the
"No State shall [...] make any Thing but gold and silver Coin a Tender in Payment of Debts"
clause in Article I Section 10.
And the point here is that the current ILLEGAL "legal tender" law required EVERYONE to accept the US Dollar (NOT SILVER, NOT GOLD) for any and all payments AND for taxes!
If the people were NOT forced to use (intrinsicaly) worthless paper, they would be at least free to contemplate what has value, and what does not.
The two (fiat, gold standard) are not mutually exclusive, because the (relative) scarcity of gold means that people would be more than willing to still accept fiat currency for payment, provided they had faith in the issuing institution! !! !! !
The current monitary crisis is being deeply aggrevated by the fact that giant institutions and players in the market no longer have any faith in the issuing institution behind the USD, and they are moving out of it. This puts an UNFAIR BURDEN on the US PEOPLE who are literally "left holding the buck", which they are ILLEGALY FORCED to use, despite the provisions laid before them in their own constitution.
Cool, thanks for the reply. I have another question for you though. In your example of using both a fiat currency and a gold backed currency, what would the fiat currencty be backed by? Would it just be backed by consumer debt like it currently is or would it somehow be redeemable for the gold backed currency or gold itself?
Cool, thanks for the reply. I have another question for you though. In your example of using both a fiat currency and a gold backed currency, what would the fiat currencty be backed by? Would it just be backed by consumer debt like it currently is or would it somehow be redeemable for the gold backed currency or gold itself?
it would be fiat.
ok. to answer without being smirky,
it would NOT be backed by anything.
it would, however, be EXCHANGEABLE on the market for whatever the market it deemed it to be worth.
If the people, vis a vis the congress, had the responsibility and integrity to uphold the "value" of the fiat currency by holding inflation in check, it could potentialy maintain a value close to that of a "dollar of gold" ... however, i suspect a gold backed dollar would always carry SOME premium over the fiat currency. But that is just life.
My point is only that simply having the ability to chose a gold backed currency (or a gold coin itself) does not inherently mean the death of a fiat dollar. It just means the managers of the fiat currency must be both honest and prudent in their policies regarding its printing.
ALL THIS IS JUST THEORETICAL,
because the reality of the current situation is that the current US Dollar is in a BAD BAD way ... and getting us off of that deathbed and over to some other more sustainable solution is going to be a long disasterous process.
:(
If I was to smile and I held out my hand
If I opened it now would you not understand?
ok. to answer without being smirky,
it would NOT be backed by anything.
it would, however, be EXCHANGEABLE on the market for whatever the market it deemed it to be worth.
If the people, vis a vis the congress, had the responsibility and integrity to uphold the "value" of the fiat currency by holding inflation in check, it could potentialy maintain a value close to that of a "dollar of gold" ... however, i suspect a gold backed dollar would always carry SOME premium over the fiat currency. But that is just life.
My point is only that simply having the ability to chose a gold backed currency (or a gold coin itself) does not inherently mean the death of a fiat dollar. It just means the managers of the fiat currency must be both honest and prudent in their policies regarding its printing.
ALL THIS IS JUST THEORETICAL,
because the reality of the current situation is that the current US Dollar is in a BAD BAD way ... and getting us off of that deathbed and over to some other more sustainable solution is going to be a long disasterous process.
:(
Haha, well, yeah. That's what I thought you meant by fiat but I'm glad you expounded on it because I just wanted to make sure I was understanding you correctly.
The "depression" in 1920 was not followed by a significant and prolonged monitary contraction.
The Fed contracted the money supply over the course of 3+ years.
So we are already out past the time frame which you specified for the 1920 downturn.
That is why i'm saying you can't evaluate what Hoover's ancillary policies did or did not contribute to the length of the situation.
Does that make sense?
I'm not really sure what you're saying here so hopefully you can explain it to me better. The Fed contracted the money supply in the early 20's and in all other previous cases, and the recessions were short-lived, but when the Fed contracted it in the depression, the depression was much longer? For what reason? Was it just the magnitude of the contraction, or was it something else like price and wage controls that would not let the contraction work?
If there are no controls there should be no reason to worry about a deflationary spiral should there?
I'm really interested in this topic so please tell me where I'm going wrong.
Why do you think the depression ended, specifically?
Comments
1. The Great Depression lasted as long as it did, not because of any failed policy of HH, but because of a grievous miscalculation on the part of the Federal Reserve.
2. No. According to Friedman (who WAS a genius) the ONLY thing that causes a prolonged recession or depression is a monetary contraction.
Just to clarify,
many of the things Hoover did were actually great policies to enact during a severe down turn. He greatly increased public works projects, which injected cash in to the system. He set up unemployment assistance, and (as much as i loathe it) he increased subsidy to agriculture.
The one thing he did which was a bit off the mark was raising tarrifs on production. That was just a bit silly. It was like he thought adding gold coin to the treasury was going to help. That is a mercantilistic notion that is just flat wrong.
The real problem that America had to deal with was that the Federal Reserve failed to increase the money supply through lowered rates and emergency lending policies to distressed banks. Yeah, I said it, the Fed should have engaged in more bailout. Afterall, isn't that why it was created?
Anyhow.
???
If I opened it now would you not understand?
I like Friedman, but I'm not sure I believe that. All previous depressions had monetary contraction, right? But since wages as well as prices were allowed to fall, these previous depressions ran their course in a relatively short period. Hoover's involvement with labor is what led to inflexible wage rates making things much worse, did they not?
About an hour ago it had an attempted (and failed) breakout to the upside after weak bottom was put in this morning.
After the up move failed, she broke down pretty hard.
We are setting new short term lows right now.
SP 1270
DOW 11371
Dmitry,
I'm not really sure there is a way to test your assertion.
This question of Hoovers interference with wages (and therefore the employment rate, you seem to suggest) is impossible to seperate from the other more powerful influence -- the Fed's monitary policy.
When you say "making things much worse", it is akin to the following metaphor. I go up to a clothesline with a blowtorch and set all the clothes on fire from the bottom. My friend then walks along the line fanning the flames.
Now if someone comes up and makes the posit, "well your friend was fanning the flames, that is what made things much worse", how are we to determin the truth of that statement? The real clear cause of the fire was the fact that i walked along the line with a freaking blowtorch.
The failure of the Federal Reserve to lower rates and infuse the market (and failing banks) with cash is what caused the depression to be so severe. The fact that we had a gold standard was also a major stumbling block. We had a REAL "leveraged" situation with REAL fractional reserve lending (as opposed to the current situation, where the "fraction" is ZERO) and instead of adding to the total banking reserves, the Fed SUBTRACTED 30% from it!
SINCE YOU BROUGHT UP UNEMPLOYMENT RATES:
[Well, indirectly ... Since stating that Hoover's causing "inflexible wage rates" i think is really trying to imply that Hoover kept unemployment unaturatly high because of an interference with the market.]
Friedman was also pretty adamant that the "dual mandate" provided The Federal Reserve is simply ridiculous. That mandate is to affect a balance between "price stability" and "full employment".
What Friedman tried to get across was the idea that if you look at history and examine all periods (bull and bear markets) there is NO connection between inflation policy and employment rates. Interest has been low with employment low. It has been high with employment low. Interest has been low with employment high, and high with employment high. It infact appears that 5% unemployment is something of a normal rate of unemployment. Anything above or below that is simply anomalous, and will be adjusted back towards 5% by sheer market forces. THEREFORE Friedman was insistant that the Fed need NOT consider employment rates while making its policy decisions. He argued that they should simply pay attention to the one thing they really do control, namely inflation. If they simply would continue to gradually expand the money supply, all would be well.
However, Friedman was also smart enough to recognize the REAL problem, which was that the Fed was NOT the government, and that it should not have a monopoly on the supply of the all important commodity known as "money".
I have to disagree with him on one thing though, and that is the idea that the money supply should be outright privatized -- especially given the current inability of consumers to determine up from down with relation to what is and what is not a good deal, or what is and what is not viable. Given this, the idea of forcing the consumer to determin by himself (or even with the help of "analysts" or "ratings agencies") who is the most stable (non-inflationary) and secure private seller of "money" simply holds no water.
I say restore the power to print money TO THE PEOPLE!
Put it in the hands of congress, and force the ELECTED officials to determin the proper supply of money. If the get it wrong, the people have a much better chance of understanding what happened and who to blame. "Oh you voted to print 3 trillion new dollars and devalue my savings by 1\3rd? Fuck you! You're out of there!"
If I opened it now would you not understand?
Does that mean you think we should've left the gold standard even earlier than we did, or do you just mean it was a stumbling block for the Federal Reserve, because I thought you liked the gold standard?
Heh.
Hey fellow traveler!
Well,
actually i think the answer is yes AND no.
In that instance i was NOT arguing against the gold standard.
All i was saying was the nature of the system of that time was based in an empirical concept of finite money supply. We intended to honor each "dollar" as a REAL asset, directly tradeable for an actual gold coin. The fact that the "leverage" in our system was underpinned at the end of the day by a real OWED asset (gold) made it all the more vulnerable.
One dollar in gold was tied to ten "dollars" in print. Ten dollars in print were tied to one hundred dollars in loans. If any of those 100 dollars in loans were to default, there could potentialy be a huge scramble for that one underlying dollar in gold.
Without a gold standard, all that would be left to fight over is how fast the Federal Reserve was going to print up more "money" and which bank it would loan out to first, and cheapest.
See?
Now,
as far as my support of the gold standard,
i'm not really sure what to say these days.
The more i contemplate the tradeoffs between a truly government owned fiat printing press (restoring the right to people vis a vis the congress and treasury) and having a treasury backed by gold, the more i realize that on some level they are equally fallacious.
I know Friedman was rather ardent in his support of the gold standard. Equally our forefathers and founding fathers sure seemed to understand and warn against the dangers of fiat money.
Honestly, i think the answer is probably a bit of column A, and a bit of column B.
Clearly the constitution no where states that congress has the SOLE right to coin money. And further, it specificaly forbids the states to make anything but gold and silver LEGAL TENDER.
And i think this is where the answer lies.
Competing currency (just like Ron Paul was suggesting) seems to be the most honest answer.
With competing currency, the people (via the CONGRESS, and not the FED) would have the right to determine the proper amount of fiat currency to be circulated in the market. The people would ALSO have the right to seek out competing sources of exchange on the market.
That means that private banks or issuers could supply the market with other currency ... backed or fiat (at the issuers discretion), and the market would be responsible for arbitrating the values. Consumers would be responsible for knowing the risks involved with whichever medium of exchange they so favored.
The people could choose between currencies that either were fiat or were backed by gold. Sure, gold is cumbersome. That is why the people would have a federaly accepted fiat currency (unencumbered by the burdens of retaining, accounting for, and exchanging commodity reserves)
The kicker is the
"No State shall [...] make any Thing but gold and silver Coin a Tender in Payment of Debts"
clause in Article I Section 10.
And the point here is that the current ILLEGAL "legal tender" law required EVERYONE to accept the US Dollar (NOT SILVER, NOT GOLD) for any and all payments AND for taxes!
If the people were NOT forced to use (intrinsicaly) worthless paper, they would be at least free to contemplate what has value, and what does not.
The two (fiat, gold standard) are not mutually exclusive, because the (relative) scarcity of gold means that people would be more than willing to still accept fiat currency for payment, provided they had faith in the issuing institution! !! !! !
The current monitary crisis is being deeply aggrevated by the fact that giant institutions and players in the market no longer have any faith in the issuing institution behind the USD, and they are moving out of it. This puts an UNFAIR BURDEN on the US PEOPLE who are literally "left holding the buck", which they are ILLEGALY FORCED to use, despite the provisions laid before them in their own constitution.
If I opened it now would you not understand?
I agree that inflation and unemployment are unrelated and that the Fed along with the credit expansion caused by fractional reserve banking actually caused the depression. I think I am disagreeing with why it lasted so long. There was a depression in 1920 that only lasted one or two years and was caused by the same problems; however Harding did not intervene and that depression was short. Hoover was the first president to really start intervening and propping up the bust cycles.
The "depression" in 1920 was not followed by a significant and prolonged monitary contraction.
The Fed contracted the money supply over the course of 3+ years.
So we are already out past the time frame which you specified for the 1920 downturn.
That is why i'm saying you can't evaluate what Hoover's ancillary policies did or did not contribute to the length of the situation.
Does that make sense?
If I opened it now would you not understand?
Cool, thanks for the reply. I have another question for you though. In your example of using both a fiat currency and a gold backed currency, what would the fiat currencty be backed by? Would it just be backed by consumer debt like it currently is or would it somehow be redeemable for the gold backed currency or gold itself?
it would be fiat.
ok. to answer without being smirky,
it would NOT be backed by anything.
it would, however, be EXCHANGEABLE on the market for whatever the market it deemed it to be worth.
If the people, vis a vis the congress, had the responsibility and integrity to uphold the "value" of the fiat currency by holding inflation in check, it could potentialy maintain a value close to that of a "dollar of gold" ... however, i suspect a gold backed dollar would always carry SOME premium over the fiat currency. But that is just life.
My point is only that simply having the ability to chose a gold backed currency (or a gold coin itself) does not inherently mean the death of a fiat dollar. It just means the managers of the fiat currency must be both honest and prudent in their policies regarding its printing.
ALL THIS IS JUST THEORETICAL,
because the reality of the current situation is that the current US Dollar is in a BAD BAD way ... and getting us off of that deathbed and over to some other more sustainable solution is going to be a long disasterous process.
:(
If I opened it now would you not understand?
Haha, well, yeah. That's what I thought you meant by fiat but I'm glad you expounded on it because I just wanted to make sure I was understanding you correctly.
I'm not really sure what you're saying here so hopefully you can explain it to me better. The Fed contracted the money supply in the early 20's and in all other previous cases, and the recessions were short-lived, but when the Fed contracted it in the depression, the depression was much longer? For what reason? Was it just the magnitude of the contraction, or was it something else like price and wage controls that would not let the contraction work?
If there are no controls there should be no reason to worry about a deflationary spiral should there?
I'm really interested in this topic so please tell me where I'm going wrong.
Why do you think the depression ended, specifically?