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The Knew in 1912

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October 17, 2011 – Comments (11)

This cartoon from 1912 shows that at least some people foresaw the havoc the Federal Reserve system would cause throughout the U.S. economy. (The Federal Reserve was signed into law in 1913.) Occupy Wall Street, take notice. 

Interesting side note: Charles Lindbergh Sr., father of the famed aviator, was one of the greatest opponents of the 1913 Federal Reserve Act that Woodrow Wilson signed into law.  

11 Comments – Post Your Own

#1) On October 17, 2011 at 2:30 PM, TMFPencils (99.82) wrote:

Ah, embarassing typo errors; in the title, no less. *They Knew in 1912. Yeesh. 

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#2) On October 17, 2011 at 2:45 PM, catoismymotor (27.42) wrote:

I appreciate a good typo. :)

Thanks for the link.

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#3) On October 17, 2011 at 2:50 PM, PeteysTired (< 20) wrote:

Pencils2 -

How much do you blame the Fed for the great depression? and why?

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#4) On October 17, 2011 at 2:57 PM, Starfirenv (< 20) wrote:

David, see this if you havn't already.  Pretty interesting.

"The Secret of Oz"
http://www.youtube.com/watch?v=swkq2E8mswI&feature=related

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#5) On October 17, 2011 at 3:33 PM, MichaelMolenaar (< 20) wrote:

Something else I'd recommend to watch is "Money as Debt". It's a tad long, but it's a great summary of how fiat currency works (or doesn't).

www.youtube.com/watch?v=vVkFb26u9g8

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#6) On October 17, 2011 at 9:22 PM, TMFPencils (99.82) wrote:

PeteysTired,

Absolutely, the Fed was the primary cause of the Great Depression. It is through a central bank's manipulation of interest rates and credit that the boom period of the business cycle is created. This article by Hans Sennholz goes into more details of the Fed's creation of the economic depression: 

"The first phase was a period of boom and bust, like the business cycles that had plagued the American economy in 1819–1820, 1839–1843, 1857–1860, 1873–1878, 1893–1897, and 1920–1921. In each case, government had generated a boom through easy money and credit, which was soon followed by the inevitable bust.

The spectacular crash of 1929 followed five years of reckless credit expansion by the Federal Reserve System under the Coolidge administration. In 1924, after a sharp decline in business, the Reserve banks suddenly created some $500 million in new credit, which led to a bank credit expansion of over $4 billion in less than one year. While the immediate effects of this new powerful expansion of the nation's money and credit were seemingly beneficial, initiating a new economic boom and effacing the 1924 decline, the ultimate outcome was most disastrous. It was the beginning of a monetary policy that led to the stock-market crash in 1929 and the following depression."  

http://mises.org/daily/3515

Without the Fed, the Great Depression would not have occurred.  

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#7) On October 17, 2011 at 9:25 PM, Frankydontfailme (27.38) wrote:

Pencils, without the fed, would American have become the financial capitol of the world? (I think yes, but curious what you think)

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#8) On October 18, 2011 at 1:50 AM, awallejr (81.56) wrote:

I appreciate a good typo. :)

I got a chuckle out of that since heaven knows I have been guilty of many a scotch imbued one.

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#9) On October 18, 2011 at 10:13 AM, rfaramir (29.31) wrote:

One mistake people make (like Milton Friedman and Paul Krugman) about the Fed and the Great Depression is to blame it all on when the Fed reduced the credit supply (increased interest rates) suddenly.

This was a bad thing to do, but it was only one small part of the whole. The initial harm was done, as pencils2 shows, by increasing the money supply in the 20s. The correct answer at that point would have been to stop inflating. Period. The following bust would have been short and sharp, painful but health-bringing.

By deflating instead, they heaped injury upon injury. This doesn't make sense until analyzed. Why not, if harm was done by increasing the money supply, reverse the harm by decreasing it? Because the harm has already been done and the market has acclimated to it, and a reversal will do just as much harm. Increasing the money supply defrauds creditors (they are paid back with depreciated dollars), decreasing the money supply defrauds debtors (they have to pay their debts with appreciated dollars).

If you, the central bank, were to increase the money supply one day and decrease it the next back to the starting point, most people would have only paper losses and gains that would offset, so little harm would have been done (except to your credibility as a provider of money and therefore trust in your dollar). But even in this case, it's not a total wash. Some people actually received new dollars and spent them before you destroyed them, while some people were holding those dollars you destroyed, and these two groups were still unfairly affected (one unjustly gained and one unjustly hurt) by your near-instant boom-bust.

As you increase the time delay between the inflation and the deflation, not only are both finally-affected groups expanded, but the "paper losses and gains" are actualized by the creditors and debtors (the ones that washed out above), creating more distortions in the market. Years of pain for creditors, followed by years of pain by debtors, together with years of pain for displaced labor and displaced capital as the markets have to adjust the structure of production to manipulated interest rates.

So really, after the fraud of an increased money supply has been done, the answer is not more fraud (to a different group) by decreasing it, but to stop the fraud. This is unpalatable to the political class, since the revalued dollar is permanent evidence of how much fraud they committed, but it's the right thing to do.

End the Fed!

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#10) On October 18, 2011 at 2:41 PM, amassafortune (29.48) wrote:

The functions of the Federal Reserve could be largely replaced by algorithms that look at growth rates, inflation, personal income, and a few other key measurments.The need for a board that only adds human emotional and political components is obsolete.

Because consumer and family spending accounts for 70% of economic activity, it makes more sense to add to the money supply at the family level where it will immediately increase the velocity of money, rather than infusing at the big bank level where the money may just be held to cover reserve requirements or be placed into lesser productive activity such as commodity speculation. The ability to add money to millions of small accounts did not exist in 1912. The need for large, national banks to facilitate the expansion of the money supply no longer exists in the modern electronic world. 

It is not surprising that congress fails to think past the speaking points of the entrenched banks to keep control and the flow of money in their own hands even though the process is antiquated.

We might even consider that congressional leaders need to maintain the inherent campaign kickback tradition that exists in the current process. Take the percent of money expansion that flows back to congress from banks in the form of campaign contributions, junkets, etc., and take that off the top before depositing the balance into millions of individual accounts. At least the process would become public. 

The functions of the Federal Reserve are mostly still necessary, but the need to funnel money expansion through secret Fed member banks to supply the U.S. economy with capital is only a political arrangement, not the most effective or efficient method in the modern electronic world. 

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#11) On October 19, 2011 at 11:54 AM, TMFPencils (99.82) wrote:

Frankydontfailme,

Yes, and the economy would be stronger without the Fed. Some of the most remarkable growth of the 19th century occured without any national/central bank. Free markets, not central planning, create prosperity.  

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