[tolbiny]

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First and foremost - Many on this board believe in the assertion that the Great Depression was caused by a contraction of the money supply. Regardless of the validity of this assertion, one must concede that there is no such contraction occuring today.


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If you are (and I think you are) talking about Austrian theory it is important to note a few points. The first is the distinction between the market crash of 1929 and the initial recession that followed. The depression that followed was caused by government intervention in the markets preventing corrections from taking place. Secondly the market crash and ensuing recession were not "caused by" a contraction in the money supply, they were caused by the expansion of the money supply. The contraction was a symptom of the weakness in the economy that existed in reality. When people started to run on the banks it was because they realized that there wasn't enough money going around like they thought, their realization didn't change the fact of the reality, it just acknowledged it. Likewise today we have an expansion of the money supply followed by the symptoms of a weakened economy, instead of a contraction we are experiencing the subprime issues, inflation and a weakening dollar because some of the other underlying issues are different, but they point to difficult times ahead.



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The Fed's Policy and Impact - In the early 1930's, the Fed as an entity did not have the experience nor the influence over the capital markets that it does today. It's best practices were not as refined. In short, successful organizations learn over time.

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This discussion has gone on for a long time, but short and sweet what makes you think the fed is a successful organization? Since its founding there has been the great depression, the stagflation of the 70s, the market crash of 87, the tech bubble burst and now the issues that are causing the concern in the here and now. The second questionable assumption is that the fed has the tools to actually fix these problems.

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Dollar as the world reserve currency - In the 1930's the Dollar WAS NOT the world reserve currency. Trillions of Dollars were not held overseas waiting for bargain shopping in America as soon as the stock market went down. Today, this serves as a feedback mechanism that will bring capital back into the capital markets.

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This won't provide any protection for the American consumer, this will be inflation in prices for them. This will also weaken the dollar further, people who used to save masses of dollars spending them will drive the value into the floor.

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Gold backed currencies - In the early 1930's, many world currencies were backed by gold, INCLUDING THE US DOLLAR. This put an artificial choke hold on the availability of cash that does not exist today. Today, the major players in the currency market are fiat or pegged in some way to the dollar. Regardless of the arguements in favor of gold backing, the world currency market is not restricted by gold today.

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Its an easy trap to fall into, but overall markets are not driven by currencies, they are driven by production of goods and services.


Honestly the one main difference between your position and the Austrian one is the view of what causes what. For an Austrian the majority of the problems in major crashes like this can be traced back to expansionary monetary policies while you believe that those expansionary monetary policies are the solution to these problems.