Re: 1929 deja vu

From: Cynthia (
Date: Wed Apr 26 2000 - 20:08:11 MDT

----- Original Message -----
From: Michael S. Lorrey <>
To: <>

> > The idea that the poverty of the 30's was because people got too good at
> > food that people could eat and too good at manufacturing products that
> > could use is just too silly to debate.
> I don't know how much you've read about the period John, but there was serious
> and prices were far below profitable levels for many if not most farmers (i.e.
> exceeded demand). Food was not transported to market because it would have
cost even more,
> leading to even greater financial losses, it was left to rot, milk was drained
from vats, etc...

Mike, there was a shortage of money. People had adjusted to inflation, and did
their financial planning based on inflation. Then the Fed decided that it
wasn't going to lend money to solvent banks that were experiencing runs.
Starting a panic that spread from bank to bank. Causing banks to call in their
loans. Suddenly, people were broke, business were broke, and there was no money
to be had anywhere even at loan shark rates. Crops rotted in the field because
nobody had the short term money required to take food to the market.

The economy started to adjust. Prices and wages deflated to match the supply of
money, and business started to pick up. But the Fed did another stupid thing.
They decided it was time to shore up the dollar by increasing gold reserves, and
reducing the money supply further. For three years, every time the economy
showed signs of recovery, the money supply was cut further. And the economy
could not adjust. People learned to put off purchases knowing that what they
were buying would be cheaper next year.

This process was finally stopped, but by this time, policies were put into place
to keep wages and prices up. And this blocked the economy from adjusting to the
new money supply level.

Finally, boom times returned when the Fed started printing money to finance the
war. And the amount of money in the economy was brought into balance with the
number of good available to buy.

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