False rumor, prejudice, and blind spot 8 : Currency to dance 3

 great crisis

< great crisis  > 


In 1929, the great crisis occurred in the United States.

The world economy got bad sharply with this crisis, fascism gained power from confusion of the society and the political situation, and it made World War II break out.

We see how American monetary policy affected this crisis outbreak.


The United States had good economy in 1920.

Economic strength grew up by the war boom of World War I (1914~1918), and consumer-goods booms, such as a car, happened.

In the second half, a business boom continued by a speculative boom.

The speculative boom began in a land-market boom, and subsequently it became the stock-market boom and was overheated.











Why did the speculative boom start?

Agricultural-products export was good in wartime, so land-market boom was active.

People became rich and got to know a charm of securities investment by the war loan that the government published.

The high-income layer went toward the stock investment according to expanded gap between the rich and the poor.

Bank also went toward it according to the change of financial system.

Furthermore, many people easily could speculate in it with the margin transaction (leverage) and investment trust.









1920s, a movie, “Great Gatsby” 

< 1920s, a movie, “Great Gatsby” >


On the other hand, real economy was getting worse.


The demand of cars or housing construction took a round, and real economy began to dwindle from the middle of the 1920s.

After the war, the agricultural-products price slumped, the farmhouse was saddled with a large debt by a speculation, and bankruptcies of smaller banks were becoming commonplace.


What added fuel to the fire?

After the war, Western countries return to the gold standard aiming at the stability of a money order and finance.

This harmed themselves. European (especially Britain) fund flowed into the U.S.

In 1927, for international cooperation, Federal Reserve Board increased the amount of money supplied sharply, and slashed interest rates.

This money further overheated a stock market boom in the U.S.












stock prices sudden fall  
< stock prices sudden fall  >


Last time came.

In the spring of 1929, FRB suggested the transition to a tight monetary policy from the uneasiness of the economic bubble.

Although the investors still strove, they got out of breath after a half-year, and the stock price took a great dive.

Many banks went into chain-reaction bankruptcies, the Great Depression spread to the world.



We can learn from the depression.

* The money supply growth, and the big difference between rich and poor ignite a speculation. Therefore it causes the large failure in the extremity of an economic bubble.

* If a central bank makes a mistake with a timing of money supply, an economic bubble and a financial crisis will be caused.

* When the government and the central bank make economic activities fully free, it causes a failure.

* The monetary policy is not decided by only the convenience of one country.











*       大きな金余りと貧富の差は必ず投機に火を着け、バブルの果てに大破綻を招く。

*       中央銀行が貨幣供給のタイミングを間違うと、バブルと金融恐慌を招く。

*       政府や中央銀行は、経済活動を自由放任にすると破綻を招く。

*       金融政策は一国の都合で決められない。



Categories: economy, history+evolution, <english language, <japanese language, politics, Series: False rumor, prejudice, blind spots | Tags: , , , | Leave a comment

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