TakeAStepBack
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- Mar 29, 2011
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By the way, if you go back in the thread, I was referring to the Panic/Depression of 1920, not 1907 initially, so wires got crossed along the way.
Yet you brought up 1907 as being so bad of a recession under the gold standard, that a central bank needed to be formed. Unfortunately, the panic had nothing to do with the gold standard and everything to do with the treasury acting as a central bank and inflating credit.
In his 1920 speech accepting the Republican presidential nomination, Harding declared,
We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity. We promise that relief which will attend the halting of waste and extravagance, and the renewal of the practice of public economy, not alone because it will relieve tax burdens but because it will be an example to stimulate thrift and economy in private life.
Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic. There hasn't been a recovery from the waste and abnormalities of war since the story of mankind was first written, except through work and saving, through industry and denial, while needless spending and heedless extravagance have marked every decay in the history of nations.
By August of 1921, the recovery was well under way from the downturn. Without the federal reserves monetary inflation policy. The budgets were slashed and deflation employed instead.
Why did the downturn occur in 1920?
Once again, the reserves were slice by half from the FRA of 1913, once again, credit was expanded by over 90% through the banking system. In 1918, the fed tightened up the faucet and a credit crunch began. Or more normally today known as the business cycle. Businesses saw the reality. Production was based on easy credit, a distortion to markets and a re-arrangement began.
Add in WW1
After this correction set on by credit expansion, the US enjoyed the roaring 20s.