Great Contraction Keys Ideas/Topics/Issues (F&S 7-7.5)

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Presentation transcript:

Great Contraction 1929-1333 Keys Ideas/Topics/Issues (F&S 7-7.5) %ΔM, %Δv, %ΔP, %Δy Closer look at velocity Importance of HPM, D/C, D/R => %ΔM Importance of Great Contraction Timeline of key events (1929-33) Why existence of Fed prevented 1907-type solution Closer look at bank failures Why were they important? Why did they happen? Why was Fed relatively unconcerned?

Great Contraction 1929-1333 Time Line of Key Events: Fed “tightens” money to fight stock-market speculation – 1928-29. FRB-NY raises discount rate from 3.5% to 5% in early 1928. Fed securities holdings drop from over $600 to $210 million (year-end 1927 to August 1929). FRB-NY raises discount rate from 5% to 6% in August 1929. Result: Money stock declines slightly from April 1928 to August 1929 (only other 16-month declines are 1907-08 and 1920-21). Stock Market Crash – October 1929

Great Contraction 1929-1333 Time Line of Key Events: First Banking Crisis – October 1930 Second Banking Crisis – March 1931 Britain’s Departure from Gold – September 1931 Large-Scale Open-Market Purchases – April 1932 Banking Panic of 1933

Great Contraction 1929-1333

Great Contraction 1929-1333

Great Contraction 1929-1333

Great Contraction 1929-1333

Great Contraction 1929-1333