Economic crisis: Cosmos and people - стр. 23

1.3. Crisis 1929

The active crisis phase started in October 1929

There is a popular opinion that crisis and the forthcoming depression are the result of the inactivity of the Federal Reserve System which allowed the cutting of money amount by one third. Here is the opinion of the American economist, Nobel Prize winner M. Friedman:

“Federal Reserve System was established in order to prevent the situation that nevertheless had happened. It was created in order to escape the situation in which you would have to close the banks in the recession stadium. But nevertheless FRS did not prevent the worst bank crisis in the history of the USA. I could not remember any other more shining example when the actions of the government directed for improving anything had lead to the exactly opposite result.

It happened so, that because of the policy supported by FRS the amount of money was cut by one third. For each 100 dollars of paper money in deposits and in currency or in cash that existed in 1929 there were only 65-66 dollars left by 1933. Such an outstanding collapse by which about one third of the banks were finally collapsed, when the savings of million people disappeared this reduction was unduly.

Within the same period FRS had an understanding as well as the power to stop it all. And they were persuaded to do it. In my opinion, the mistake of the policy that led to the Great Depression was completely clear”.

For decades economists virtuously invent the reasons for this crisis. That is why the skeptics in respect of the following conception is regular, although the former head of FRS Bernanke agreed that it was the blame of FRS. But we should note that we are describing the actions of FRS after August 1929, and before that time, namely BEFORE the crises started, there are no claims to money amounts. Before this time it annually increased approximately by 0,7%. Before 1929 money were pumped into the economy in the proper amount, but the crisis started. The squeeze of money started after the crisis had started. At first time FRS pumped money into economy, than it started to withdraw it. One thing after another and absolutely opposite.

But the thing is that the reduction of money amount did not stop the emotions of the participants of the market. In 1929 the market was in the state of boom and there was the injudicious optimism of most participants of the market. There was a pressure for money due to the growth of the unreasonable optimism of the market participants, their targeting at purchases and playing at the built pyramid. For that purpose they loaned and loaned money. This emotional state of people