(Conspiracy Nation, 1/30/05)
-- Designated fall guys for the Great Depression are Herbert Hoover and
the 1929 stock market crash. The true origin, though, of the bursting
of the roaring '20s was immense gold migration into then out of the
United States.
As reported earlier in Conspiracy
Nation, the "Federal" Reserve notes used as U.S. dollars were
once required to have a 40 percent gold backing at issue. This meant
that, once upon a time, for every dollar of gold held by the money
monopoly, $2.50 of the "Federal" Reserve notes could be issued. (See
"Aluminum Napoleons," www.shout.net/~bigred/Aluminum.html)
At the close of the Great War (World War I), Britain and other
European nations confronted enormous debts. Wars are costly, both in
terms of lives lost and of money spent. The United States had entered
World War I relatively late, so her expenditures had not been as great
as those of Europe. Britain, among others, owed a great deal of money.
To help repay her war debts, Britain adopted the then-novel idea of
breaking the connection between the British pound and gold. Germany
also had huge debts, augmented by harsh terms under the Versailles
Treaty of 1919. Gold began migrating to the United States.
Because "Fed" notes -- "dollars" -- required a 40 percent gold
backing, the sudden influx of gold into the U.S. caused a dollar
expansion. Almost overnight, there were a lot more dollars available.
Where to put them? Farmers could invest in their farms. There was
farmer
friendly legislation, making it easier for farmers to borrow money at
very generous rates. ("Farm Credits." Time, 3/3/1923) There was a
building boom; "Speculative construction" in the building industry; A
Building Tax Exemption Law, considered by Justice Tierney to be
unconstitutional. ("The Building Boom." Time, 3/31/1923 and
"Construction Halts." Time, 5/28/1923) Stocks could be bought on
margin,
with easy credit.
"We are sitting on a slumbering volcano of excess gold reserves,"
warned Time magazine.
("Current Situation." Time, 2/4/1924) Heavy importations of gold into
the U.S. caused a drop in money rates. (More gold --> more "Fed"
notes --> increased supply of dollars --> dollars "cost" less,
i.e., a drop in money rates.) "Few Reserve Banks are at
present earning the 6% dividend payable on their stock." ("Federal
Reserve Dividends." Time, 9/1/1924)
Then, in January 1925, "Undetected, like a shadow in the dead of
night, Governor Montagu Norman of the Bank of England made his way to
the U.S." Norman met with officers of the "Federal" Reserve Bank of New
York. "Why had he come? What was he doing?" wondered Time magazine.
("From the 'Old Lady.'" Time, 1/12/1925)
Still, in February 1925, there was a "continued ease of money." This
"plenty of cheap funds" did not please the "Federal" Reserve banks,
"which are at present frequently not earning their dividends."
("Current Situation." Time, 2/2/1925)
May 1925. Winston Churchill, Chancellor of the Exchequer, abruptly
put Britain back on a gold standard. Britain's Gold and Silver Export
Act of 1920 was allowed to lapse. Churchill announced that a 35 percent
gold reserve had already been established. (Was this set up by Montagu
Norman during his aforementioned hush-hush visit to New York?) Plus, a
credit with the U.S. for $300 million in gold was in place. Churchill
had been "discreetly" accumulating dollars. But why had Britain gone
off gold in the first place? It was a feasible avenue to repay her war
debts. Was
there a long-range plot, to park British gold in the U.S., pay war
debts in paper, then reclaim gold and return to a gold standard? (See
"Budget Time." Time, 5/11/1925) The return to the gold standard by
Britain, in 1925, was "perhaps the outstanding event of 1925." It
marked a sea change, in european countries, of a return to gold as
backing for their money. ("Gold Money" Time, 5/11/1925)
Also in May of 1925: In 10 more years the 20-year charters of the
"Federal" Reserve Banks would expire. If there were an economic
depression in 1935, it would be harder to get the charter renewed then.
Treasury Secretary Andrew Mellon is far-sighted, "already looking
forward to 1935," reported Time magazine. ("Rechartering" 5/4/1925)
President at this time was Calvin Coolidge. So-called "Coolidge
prosperity" began to "suffer many a blow." The stream of gold turned
away from the U.S. This weakened the "Federal" Reserves ability to
manufacture dollars, due to the 40-percent gold limitation. ("Era's
End." Time 7/23/1928) Did Coolidge see "the writing on the wall"? Is
that why "Silent Cal" did not seek re-election in 1928?
By February of 1928, more than a year before the dramatic crash of
the stock market, Time magazine was reporting "4,000,000 Jobless?" In
New York State, unemployment was at its worst since 1921. The Labor
Bureau, Inc., estimated 4 million unemployed throughout the U.S. (Time,
2/20/1928) There was widespread suspicion that banks lacked
sufficient reserves. ("Quit." Time 4/9/1928) The lack of reserves would
obviously have been caused by the gold migration out of the U.S.,
subsequent to Britain's re-embracing the gold standard in 1925, since
given the 40 percent gold reserve requirement for "Fed" notes, less
gold meant less notes. In May of 1928, there was frenzied trading on
the New York Stock Exchange. "From the floor a ululant howling roared."
It was "the worst break in stock market prices of the present
expansion." ("Stock Market Jamboree." Time, 5/28/1928)
All this was occuring in 1928. Yet to most people, the erroneous
idea that the stock market crash of October 1929 caused the Great
Depression persists. The 1929 Crash serves as a useful myth hiding
deeper circumstances: it is the Lee Harvey Oswald of the Great
Depression.
Fast forward to October 1979: There is "relentless inflation and
repeated runs on the no longer almighty dollar... drubbings of the
greenback abroad." Fears of a "50th-anniversary replay of the October
1929 Wall Street collapse." Inflation at an annual 13.1 percent. Not to
worry: "Federal" Reserve chief Paul Volcker, who "works in a complex
and mysterious world," pulls out all the stops. He will not only raise
rates perhaps even to levels "wholly unimagineable" but will also make
money scarce (decrease supply). Volcker raises rates a full point, from
11 percent to 12 percent. More resoundingly, the "Fed" will rely less
on interest rates to preserve the dollar's value, and henceforth "will
just stop creating dollars instead." By "throttling back on the money
supply itself," says Brussells banker Roland Leuschel, "Paul Volcker is
attacking inflation at its source." ("The Squeeze of '79." Time,
10/22/1979)
January 2005: "Global economic experts meeting in Switzerland this
week discounted the rumored impending death of the dollar as the
world's anchor currency, saying any wholesale stampede away from the
greenback is highly unlikely... Fear of the dollar's impending death is
greatly exaggerated." ("Davos experts say dollar not dead yet."
Knight-Ridder. Published in Champaign-Urbana News-Gazette, 1/29/2005)
As in 1979, the "Federal" Reserve can cease creating dollars should
interest rate hikes fail to preserve the dollar's value sufficiently.
The rate at which dollars are loaned is widely reported. Much more
secretive is "M2" and "M3": measures of the actual money supply. Conspiracy Nation has searched in
vain for M2 and M3 reports. Where are they? Does anyone know? If they
are reported somewhere, are they decipherable? Can they be understood
by the layman?
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