The End of Prosperity?

[RedEarth]

The End of Prosperity?
By Niall Ferguson Thursday, Oct. 02, 2008



Only in April 1932, amid heavy political pressure, did the Fed attempt large-scale open-market purchases — its first serious effort to counter the liquidity crisis. Even this did not suffice to avert a final wave of bank failures in late 1932, which precipitated the first state "bank holidays" (temporary statewide closures of all banks).

When rumors that the new Roosevelt Administration would devalue the dollar led to widespread flight from dollars into gold, the Fed raised the discount rate, setting the scene for the nationwide bank holiday proclaimed by President Franklin Roosevelt on March 6, 1933, two days after his Inauguration — a "holiday" from which 2,500 banks never returned.

The obvious difference between then and now is that Fed Chairman Ben Bernanke has learned from history — not surprising, given that he once studied the Great Depression intensively. Since the onset of the credit crunch in August 2007, Bernanke has repeatedly cut the federal-funds rate from 5.25% down to an effective rate at one point last week of about 0.25%. He has pumped money into the financial system through a variety of channels: in all, about $1.1 trillion over the past 13 months.

http://www.time.com/time/business/article/0,8599,1846450-2,00.html

[riverdale]

1. Free Soup

If we had Great Depression II, do you think they would have storefronts like this used for widespread distribution of free soup, coffee, and donuts? I can't see that happening in 21st century America.

[Stellabella]

2. Here's a strange phrase:

"The Bush Administration, which ran substantial deficits in the boom years, looks set to run an even larger deficit now."

What "boom years"? There haven't been any 'boom years' in the 2000s.

[bemildred]

3. The writer didn't want to say "bubble years", but that is what was meant. nt