It's 1819 All Over Again
April 07, 2009
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The great thing about history is that we can learn to ignore it. Here is an interesting article by C.J. Maloney on the American housing bubble of 1819 that I recommend for reading, and eventual ignoring. Learning from history is clearly a foolish endeavor that only antigovernment terrorist enablers would ever take part in.
An excerpt from this pointless analysis:
"Amidst much hypocrisy, backroom dealing, bribery, threats, and displays of great oratorical skill, they proposed for themselves more money and power: another central bank, America's second go at the institution. (We are now on our fourth.) The new Bank of the United States was up and running by 1816, with the ostensible purpose of bringing the state banks' inflation to heel.
Instead, the men who ran the new central bank promised not to demand redemption of any state bank paper notes until over one year later. And they bailed out the insolvent state banks with $6 million in taxpayer money. The more things change, the more they stay the same.
To add injury to insult, the men who ran the central bank "jumped on the inflationary bandwagon" themselves (Dupre 2006, p. 271). Printing paper and promises with Bernanke-like abandon, within two years of its creation they had loaned $41 million worth of gold promises and issued paper bank notes redeemable in gold worth $23 million, all on top of just $2.5 million worth of gold (Dupre 2006, p. 270), a level of leverage insane enough to make a Lehman Brothers risk manager feel right at home.
"Flood[ing] the market with bank notes it could not now redeem" (Dobson 2002, p. 105) between 1816 and 1818, the supply of paper bank notes and credit on the US market grew by 40.7%, "most of it supplied by the Bank of the United States" (Rothbard 2007, p. 87). The Philadelphia and Baltimore branches of the bank would prove to be the most profligate — and the most corrupt — of all.
The economic dislocations gained steam throughout 1816–1818, and prices in real estate, land, and slaves floated upward on credit. As 1818 feverishly arrived, though, it was only the greatest of the fools who were buying. The music would soon come to an end since the postwar prosperity was built on a foundation of nothing more than pieces of paper with promises scribbled on them. In the actual vaults, there was precious little money (the pledged gold) at all."
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