Greenspan Should’ve Known Better
Federal Debt Relief System spotted this at The Market Oracle recently:
In his book, The Money Men , H.W. Brands wrote of the first major test the Federal Reserve faced after its creation in 1913. In its role as arbiter of the nation’s money supply the Fed made its first policy blunder in making cheap money overly plentiful in the early 1920s, which encouraged a speculative bubble in the stock market. By 1928, the Fed recognized its error and instead of gradually slowing down the money creation, did something that has been part of their modus operandi ever since. In true reactionary fashion the Fed slammed on the monetary brakes and started raising interest rates, paving the way for the great 1929 stock market crash.
Making matters worse and adding fuel to the fire, the Fed continued its tight money policy while the U.S. government actually raised taxes and thereby greatly exaggerated the Great Depression of the 1930s. Was this a case of ignorance born of inexperience or was a sinister motive at work here? One could almost excuse their mistakes of the late 1920s and early ‘30s due to the Fed’s lack of experience. Yet such latitude can’t be so easily granted them today with more than 90 years of experience behind them.
Long-time Fed watcher Bert Dohmen of the Wellington Letter offers the following insight, “Who controls the liquidity necessary to buy stocks? It’s the Federal Reserve through its monetary policy.” Dohmen goes on to observe, “Invariably bear markets occur when the central bank tightens money. This sudden change in the availability of money causes investors to sell stocks in order to raise cash. Suddenly the buyers turn into sellers and the markets plunge….It’s a shift in the demand-supply relationship.”
One astute economist wrote in 1966 concerning the 1929 stock market crash, “The excess credit which the Fed pumped into the economy (in the late 1920’s, in order to lower interest rates) spilled over into the stock market – triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in breaking the boom. But it was too late: By 1929 the speculative excesses had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed….The world economies plunged into the Great Depression of the 1930’s.”
This economist was none other than Alan Greenspan. In the above statement he admits that whenever the Fed sees speculative excess (as they certainly did in the 2003-2004 period) it will cause them to tighten money. It has been ever thus since the Fed’s inception in 1913.
Will the Fed’s latest efforts at reflating the financial market succeed? If history is any guide then it should eventually stabilize the stock market and allow the newly formed 6-year up cycle along with the peaking 10-year cycle to work its magic in 2009 for one final cyclical bull market before the “hard down” phase of the Kress 40-year and 60-year cycles commences in 2010.
Federal Debt Relief System believes it’s important that people know the truth so that they can make up their own minds.
Also See: Credit Revolt, financial disaster
