CAMBRIDGE IGCSE HISTORY: THE DAWES PLAN 1924. Contains: Germany's financial problems, imploding Weimar Republic, support for Germany, reflating German economy, reparations, payments, the importance of Dawes plan.
CAMBRIDGE IGCSE HISTORY: THE DAWES PLAN 1924. Contains: Germany's financial problems, imploding Weimar Republic, support for Germany, reflating German economy, reparations, payments, the importance of Dawes plan.
This page examines the reforms made to Germany's currency after the hyperinflation crisis, and also the Dawes and Young Plans regarding World War One reparations.
The Great Depression - Presentation (Macroeconomics Perspective)Arjun Parekh
This brief presentation on 'The Great Depression' has been made from the point of view of understanding Macroeconomic factors that played an important role.
This page examines the reforms made to Germany's currency after the hyperinflation crisis, and also the Dawes and Young Plans regarding World War One reparations.
The Great Depression - Presentation (Macroeconomics Perspective)Arjun Parekh
This brief presentation on 'The Great Depression' has been made from the point of view of understanding Macroeconomic factors that played an important role.
This powerpoint accompanies the article "Bringing it to the People, Lessons from the Great Depression" about what museums did during the 1930s economic crisis. http://www.aam-us.org/pubs/mn/depression.cfm
2studEnt Economic rEviEw vol. XXXiiThe Failure of In.docxrhetttrevannion
2
studEnt Economic rEviEw vol. XXXii
The Failure of
International
Multilateralism and the
Great Depression
Melissa Barrett, Senior Freshman
Almost 90 years after its beginning, the causes of the great depression
remain contested and uncertain. In this paper Melissa Barrett attempts
to decipher the chain of effects which caused the initial deflationary
episode to propagate into a deep depression. She explains how the gold
standard monetary became a catalyst of the deflationary crisis. This was
a symptom of an inadequacy in policymakers’ toolkit of response, due
to a lack of understanding and acknowledgement of the business cycle,
and international coordination. She concludes that these key failures
which were the root of policymakers’ miserable failure to mitigate the
crisis.
Introduction
This essay will argue that the primary causes of the Great Depression were the deflationary conditions of the mid 1920s, caused mainly by incompe-
tency in monetary policy. By extension, it is my contention that the internation-
al resentment caused by deflation was a reason behind the deep severity of the
Great Depression. Furthermore, any limited response was muted by the lack of
coordination between the world’s economy, and the prevailing attitude of narrow
national interest, rather than acknowledgement of the interdependent nature of
the global economy.
Deflation was incredibly problematic during the 1920s as it caused a rise
in the real value of debts, which brought already strained creditors to breaking
point. Deflation made paying back intergovernmental debts even more unfeasi-
ble, and this exacerbated the existing strain between countries in the post war
period. This strain was further worsened by debtor nations’ unrealistic expecta-
3
Economic History
tions and so it is the case that by 1923, the French still believed that the Germans
would make their reparation payments (Kemp, 1972).This was despite the fact
that the German mark was not stabilised until 1924, after a period of hyperinfla-
tion (Zacchia, 1976). Hjalmar Schacht, President of the Reichsbank from 1923 to
1930, wrote in 1931 that ‘the French attack upon German currency … was the
seed of that ever-growing lack of confidence which today hangs over the entire
world’ (Kindleberger, 1973).
Origin of deflation
A pertinent question to pose at this point is where did these deflationary
conditions come from? I will discuss two main causes of deflation, the housing
sector in the U.S and the Gold Standard. Both causes will be related back to a
European context. A single example which illustrates the immense importance
of the U.S to the international economy is seen in the fall of U.S exports when
the Federal Reserve raised interest rates in 1927. The fall in U.S exports was due
to other countries raising their own interest rates to keep in line with the domi-
nant currency of the world, the U.S dollar(Eichengreen, 2004).This was not an
advisab.
The Myopia of Hope (Bob Swarup presentation, Feb 2013)Bob Swarup
A presentation based on the first part of Till Debt Us Do Part, a new special report for Lombard Street Research by Dr Bob Swarup and Dario Perkins, which looks at the debt restructurings born of reparations that occurred in Europe in the 1920s and 1930s, and examines the parallels to Europe today. These are striking: a fixed exchange rate (gold vs euro); a complex web of debt (reparations and inter-allied war debts vs inter-European loans today); an intractable debtor (US vs Germany) that slavishly believed all debts needed to be honoured; and a misplaced belief in crushing austerity as the answer. La plus ça change...
The presentation tells about all the aspects that led to the great economic depression in 1929. All the historical, financial and other factors are looked upon with the help of online available data.
Explain how the current economic recession differs from the depressio.pdfrozakashif85
Explain how the current economic recession differs from the depression in the 1930\'s.
Solution
The Great depression was worldwide. It was due to the collapse of the international financial
system It also resulted from the mutual adoption by many countries ( including USA) of high-
tariff policies, which were intended to keep out foreign goods in order to protect domestic
producers. The policies were called \"beggar thy neighbour\" strategies since they attempted to
\"export\" unemployment by improving one country\'s trade position and hence demand for its
goods at the expense of its trading partners And , of course, if each country keeps out foreign
goods, the volume of world trade declines, providing a contractionary influence on the world
economy
Almost every country suffered a deep recession in the 1930s, but some countries did better than
USA Sweden began an expansionary policy in the early 1930s and reduced its unemployment
relatively quicker Britain\'s economy suffered high unemployment but in 1931 it went off the
gold standard and the ensuing devaluation of the pound sterling set the stage for some
improvement. Germany grew rapidly after Hitler came to power and expanded government
spending. China escaped the recession until after 1931, because it had a floating exchange rate.
In 1938, real GNP in US rose above its 1929 level for the first time in the decade, but it was not
until 1942 , after the US formally entered world war II , that the unemployment rate finally fell
below 5%
The experience of the US in the early 1980s- the worst recession since the Great Depression,
casts doubt on the optimistism of recovery. During the 1980s, the US experienced the largest
sustained budget deficits in its peacetime history. Even so cutting spending or raising taxes was
not politically popular. Gradually, in the 1990s, the deficit began to be brought under control,
and toward the end of the decade the budget swung into surplus.This was due to raising the
prices and government spending.
By,
Nishant Bhatt.
Basavarajeeyam is an important text for ayurvedic physician belonging to andhra pradehs. It is a popular compendium in various parts of our country as well as in andhra pradesh. The content of the text was presented in sanskrit and telugu language (Bilingual). One of the most famous book in ayurvedic pharmaceutics and therapeutics. This book contains 25 chapters called as prakaranas. Many rasaoushadis were explained, pioneer of dhatu druti, nadi pareeksha, mutra pareeksha etc. Belongs to the period of 15-16 century. New diseases like upadamsha, phiranga rogas are explained.
micro teaching on communication m.sc nursing.pdfAnurag Sharma
Microteaching is a unique model of practice teaching. It is a viable instrument for the. desired change in the teaching behavior or the behavior potential which, in specified types of real. classroom situations, tends to facilitate the achievement of specified types of objectives.
Explore natural remedies for syphilis treatment in Singapore. Discover alternative therapies, herbal remedies, and lifestyle changes that may complement conventional treatments. Learn about holistic approaches to managing syphilis symptoms and supporting overall health.
ARTIFICIAL INTELLIGENCE IN HEALTHCARE.pdfAnujkumaranit
Artificial intelligence (AI) refers to the simulation of human intelligence processes by machines, especially computer systems. It encompasses tasks such as learning, reasoning, problem-solving, perception, and language understanding. AI technologies are revolutionizing various fields, from healthcare to finance, by enabling machines to perform tasks that typically require human intelligence.
Lung Cancer: Artificial Intelligence, Synergetics, Complex System Analysis, S...Oleg Kshivets
RESULTS: Overall life span (LS) was 2252.1±1742.5 days and cumulative 5-year survival (5YS) reached 73.2%, 10 years – 64.8%, 20 years – 42.5%. 513 LCP lived more than 5 years (LS=3124.6±1525.6 days), 148 LCP – more than 10 years (LS=5054.4±1504.1 days).199 LCP died because of LC (LS=562.7±374.5 days). 5YS of LCP after bi/lobectomies was significantly superior in comparison with LCP after pneumonectomies (78.1% vs.63.7%, P=0.00001 by log-rank test). AT significantly improved 5YS (66.3% vs. 34.8%) (P=0.00000 by log-rank test) only for LCP with N1-2. Cox modeling displayed that 5YS of LCP significantly depended on: phase transition (PT) early-invasive LC in terms of synergetics, PT N0—N12, cell ratio factors (ratio between cancer cells- CC and blood cells subpopulations), G1-3, histology, glucose, AT, blood cell circuit, prothrombin index, heparin tolerance, recalcification time (P=0.000-0.038). Neural networks, genetic algorithm selection and bootstrap simulation revealed relationships between 5YS and PT early-invasive LC (rank=1), PT N0—N12 (rank=2), thrombocytes/CC (3), erythrocytes/CC (4), eosinophils/CC (5), healthy cells/CC (6), lymphocytes/CC (7), segmented neutrophils/CC (8), stick neutrophils/CC (9), monocytes/CC (10); leucocytes/CC (11). Correct prediction of 5YS was 100% by neural networks computing (area under ROC curve=1.0; error=0.0).
CONCLUSIONS: 5YS of LCP after radical procedures significantly depended on: 1) PT early-invasive cancer; 2) PT N0--N12; 3) cell ratio factors; 4) blood cell circuit; 5) biochemical factors; 6) hemostasis system; 7) AT; 8) LC characteristics; 9) LC cell dynamics; 10) surgery type: lobectomy/pneumonectomy; 11) anthropometric data. Optimal diagnosis and treatment strategies for LC are: 1) screening and early detection of LC; 2) availability of experienced thoracic surgeons because of complexity of radical procedures; 3) aggressive en block surgery and adequate lymph node dissection for completeness; 4) precise prediction; 5) adjuvant chemoimmunoradiotherapy for LCP with unfavorable prognosis.
Ozempic: Preoperative Management of Patients on GLP-1 Receptor Agonists Saeid Safari
Preoperative Management of Patients on GLP-1 Receptor Agonists like Ozempic and Semiglutide
ASA GUIDELINE
NYSORA Guideline
2 Case Reports of Gastric Ultrasound
Tom Selleck Health: A Comprehensive Look at the Iconic Actor’s Wellness Journeygreendigital
Tom Selleck, an enduring figure in Hollywood. has captivated audiences for decades with his rugged charm, iconic moustache. and memorable roles in television and film. From his breakout role as Thomas Magnum in Magnum P.I. to his current portrayal of Frank Reagan in Blue Bloods. Selleck's career has spanned over 50 years. But beyond his professional achievements. fans have often been curious about Tom Selleck Health. especially as he has aged in the public eye.
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Introduction
Many have been interested in Tom Selleck health. not only because of his enduring presence on screen but also because of the challenges. and lifestyle choices he has faced and made over the years. This article delves into the various aspects of Tom Selleck health. exploring his fitness regimen, diet, mental health. and the challenges he has encountered as he ages. We'll look at how he maintains his well-being. the health issues he has faced, and his approach to ageing .
Early Life and Career
Childhood and Athletic Beginnings
Tom Selleck was born on January 29, 1945, in Detroit, Michigan, and grew up in Sherman Oaks, California. From an early age, he was involved in sports, particularly basketball. which played a significant role in his physical development. His athletic pursuits continued into college. where he attended the University of Southern California (USC) on a basketball scholarship. This early involvement in sports laid a strong foundation for his physical health and disciplined lifestyle.
Transition to Acting
Selleck's transition from an athlete to an actor came with its physical demands. His first significant role in "Magnum P.I." required him to perform various stunts and maintain a fit appearance. This role, which he played from 1980 to 1988. necessitated a rigorous fitness routine to meet the show's demands. setting the stage for his long-term commitment to health and wellness.
Fitness Regimen
Workout Routine
Tom Selleck health and fitness regimen has evolved. adapting to his changing roles and age. During his "Magnum, P.I." days. Selleck's workouts were intense and focused on building and maintaining muscle mass. His routine included weightlifting, cardiovascular exercises. and specific training for the stunts he performed on the show.
Selleck adjusted his fitness routine as he aged to suit his body's needs. Today, his workouts focus on maintaining flexibility, strength, and cardiovascular health. He incorporates low-impact exercises such as swimming, walking, and light weightlifting. This balanced approach helps him stay fit without putting undue strain on his joints and muscles.
Importance of Flexibility and Mobility
In recent years, Selleck has emphasized the importance of flexibility and mobility in his fitness regimen. Understanding the natural decline in muscle mass and joint flexibility with age. he includes stretching and yoga in his routine. These practices help prevent injuries, improve posture, and maintain mobilit
2. Why “Great” Depression
Ben Bernanke: “To understand the Great Depression is the
Holy Grail of macroeconomics. Not only did the Depression
give birth to macroeconomics as a distinct field of study, but
also---to an extent that is not always fully appreciated—the
experience of the 1930s continues to influence
macroeconomists; beliefs, policy recommendations and
research agendas…..We do not yet have our hands on the
Grail by any means…..”(JMCB, 1995)
3. Rex Tugwell
(advisor to Roosevelt)
“The Cat is out of the Bag.
There is no invisible hand.
There never was. If the
depression has not taught us
that we are incapable of
education…..We must now
supply a real and visible
guiding hand to do the task
which that mythical,
nonexistent, invisible agency
was supposed to perform,
but never did.”
4. The Prelude 1919-1929
• U.S. enters the war late. (1917-1918)
effects on U.S. economy relatively small
compared to European economies.
• Huge damage and disruption to European
economies.
• Real GDP = 100 in 1913. In 1919,
UK=101 France=75 Germany=72 US = 116
• Inflation! Price level = 100 in 1914. In 1918
UK=210 France=213 Germany304 US=164
• Huge climb in Debt/GDP ratios.
5. Consequences
1. World War I---9.5 million deaths. Loss of a
generation (UK 1m, France 1.4m, Germany 2m,
US 114,000)
2. Destruction of physical capital especially
Belgium and northern France
3. Distortion of patterns of production, trade and
consumption (e.g. high wartime prices for
commodities—boom and collapse in U.S.
4. High cost of war. Estimated $208 billion.
5. Political and economic borders of Europe are
redrawn.
6. Inter-allied war debts and German reparations.
6. Inter-Allied War Debts ($ billions)
(Kindleberger,The World in Depression
France
4.0 3.0
4.7 3.5
United States United Kingdom
8.1
3.2
Other Countries
To pay principal and interest, war devastated economies would
have to run balance of payments surpluses.
7. German Reparations
• John Maynard Keynes (1919) Reparations
were a “policy of reducing Germany to
servitude for a generation, of degrading
the lives of millions of human beings, and
of depriving a whole nation of happiness.”
They were “abhorrent and detestable.”
• Étienne Mantoux (1946) Reparations not
excessive, destructive or uncollectible.
• The French paid in 1815 and 1871---”Le
Boche Paiera”
8. The magnitude of reparations
Indemnity Percent Share of
(billions) of One Debt
Year's Service
GDP to GDP
France 1815-1819 FF 1.65 to 18 to 21 1.2 to 1.4
1.95
France 1871 FF 5.0 25 0.7
Germany1923-1931 DM 50 83 2.5
Vichy 1940-44 FF 479 111 2.6
Germany1953-1965 527 US$ 7.7 0.4
Japan 1955-1965 1486 US$ 3.0 0.8
9. Solution---the Dawes Loan 1924
• German Hyperinflation.
• Dawes Loan---begins series of loans---
U.S. provides funds and funds for
investment around the globe.
• New York as central of global finance—not
London
10. Return to Gold Standard
“Status Quo Antebellum”
• No problem for U.S.—huge balance of payments
surpluses and gold
• U.K. deflates and returns to gold in 1925 at old
parity £1 = $4.86. But overvalued. Depressed
economy.
• France with near hyperinflation returns to gold in
1926 at a new parity (old $1= 5FF now $1 = 25.5
FF) Undervalued currency. Booming economy.
• Germany’s hyperinflation---returns to gold at
near purchasing power 1925.
• Major imbalances---brittle equilibrium.
11. Adjustment under restored gold
standard more difficult
• International capital markets are revived---
generally free.
• International labor flows almost eliminated
—immigration restrictions
• Increased protectionism
• Less wage flexibility. Wage now seem
sticky even with high unemployment
12. U.S. Economic Prosperity in 1920s
• No trend inflation
• High productivity growth
• 1922-1929, GNP grew at 4.7%,
• Unemployment averaged 3.7%.
• Fed accommodated seasonal demands
for credit and attempted to smooth
economic fluctuations. (2 brief
recessions)
13. Some basic numbers
• Peak August 1929, Trough May 1933
• Real GDP falls 39%
• Real Consumption falls 29%
• Prices (GDP deflator) falls 23%
• Unemployment Jumps:
– 3.2% in 1929
– 25% in 1933 (21%Darby)
– 17% in 1939 (17% Darby)
• Banking Collapse
– July 1929, 24,504 banks, $49 billion deposits.
– December 1932, 17,802 banks, with $36 billion.
– After Bank Holiday March 1933, 11,878 banks with
$23 billion deposits.
14. Key American Role in World Depression
• Based on
industrial
production
GD starts in
most
countries at
the same
time
• But it is
larger and
longer in the
U.S. Romer
(1993)
15. Worst in the U.S.
• For the U.S.,
Industrial
Production
– Biggest drop in
first year
– Biggest drop
peak to trough
– Biggest drop in
the last year.
• However, turning
points are very
similar
16. Understanding the Great Depression:
Its Evolution by Phases
Real GDP, 1920-1941
1. Booming Strong Economy in 1920s
140
2. Beginning Shocks, 1928-1929
3. Aggravating Shocks, 1930-1933
130
4. Rock Bottom and Recovery, 1933-1936
120
5. The 1937-1938 Recession
110
6. The Recovery, 1939-1941
1929=100
100
90
80
70
60
1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941
17. Understanding the
Great Depression:
Four Basic Questions Real GDP, 1920-1941
140
1. Why it Began?
2. Why so Deep? 130
3. Duration? 120
4. Recovery? 110
1929=100
100
90
80
70
60
1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941
18. Understanding the Great Depression:
Its Evolution by Phases
1. Booming Strong Economy in 1920s…but
a) It’s the Roaring Twenties!
b) No trend inflation
c) High productivity growth
d) 1922-1929, GNP grew at 4.7%,
e) Unemployment averaged 3.7%.
f) Fed accommodated seasonal demands for credit and
attempted to smooth economic fluctuations. (2 brief
recessions)
g) BUT: Weak American Agriculture: low prices, high debt,
weak banks
h) BUT: Weak Europe: reparations, debts to U.S., slow
growth, gold standard fragile (overvalued £, UK slumps)
and (undervalued FF, France booms)
i) BUT: U.S. Stock market boom halts foreign loans to
Germany, Eastern Europe and Latin America
19. Understanding the Great Depression:
Its Evolution by Phases
1. Beginning Shocks, 1928-1929
• Spring 1927 U.S. expansionary monetary policy to ease pressure
on the British balance of payments. Critics assert policy too easy,
and allows stock market boom to ignite
• Fed tightens policy in 1928 (discount rate 3 ½ to 5%, and there is
little increase in total money or credit for 1928-1929.
• U.S. stock market boom begins March 1928.
• Commercial paper market vanishes
• No new lending to Germany, Austria and rest of work in
1928….Germany slides into a recession.
• Fed tries to “jaw-bone” market down. Criticizes brokers loans.
• July 1929 raises discount rate from 5 to 6%.
• But July-August is peak of business cycle. Recession begins
Summer 1929
• October 1929 U.S. Stock market crash: wealth effect—lowers
consumption and investment, credit effect—reduces value of
collateral and hence lending
• Smoot-Hawley tariff 1929 by U.S. induces retaliatory tariffs by
other countries, international trade declines
20. Understanding the Great Depression:
Its Evolution by Phases
1. Aggravating Shocks, 1930-1933
a) Banking Panics, 1930, 1931, 1933
– Failure of the Fed to Pursue Expansionary Policy
– Collapse of Gold Standard: Austria, Germany leave the gold
standard, Britain departs after a run on the pound in September 1931
– U.S. begins losing gold, trade deficits and capital flight.
2. From Rock Bottom to Recovery, 1933-1936
– Bank Holiday March 1933
– U.S. abandons the Gold Standard March 1933
– New Deal Banking and Securities Legislation
– Monetary Expansion
– Minimal Fiscal Policy
– National Industrial Recovery Act (NIRA)
3. The 1937-1938 Recession
a) The Fed Raises Reserve Requirements
4. The Recovery, 1939-1941
a) Monetary Expansion
b) Fiscal Expansion in preparation for war.
21. Four Basic Questions:
1. Why It Began?
2. Why So Deep and 3. So Long?
• Friedman and Schwartz (and others), the
economy is entering a recession in late
1929
• The economy is beginning to recover in
1931 like a normal business cycle
• BUT what makes the recession worse?
• What turns the recession into a
depression?
22. The Worsening Depression
• Slight recovery early 1931,then plunge.
• Why?
• Romer (1993) “The source of the continued
decline in production in the United States was
almost surely a series of banking panics.”
• Friedman and Schwartz (1963) document four
panics
– Fall of 1930
– Spring 1931
– Fall 1931---Britain abandons the Gold Standard
– First Quarter 1933
• 9000 Banks suspend operations. Depositors
and stockholders lose $2.5 billion = 2.4% of
GDP…...not the whole story
24. Why Banking Panics?
• There were no banking panics in Canada.
• Fragmented unit banking system
• Undiversified bank portfolios with high
regional concentration of loans. Large
number of bank closures in the agricultural
states when agricultural prices fall. In
addition, many hold bonds whose value
collapsed.
• Many banks become insolvent
• Fear of insolvency feeds the liquidity
crisespanics.
25. Effects of Banking Panics
• Money Supply Declines and there is a massive
rise in realized real interest rates, over 10%.
• Friedman and Schwartz blame inaction of the
Fed for this decline---and hence for the
depression.
26. How do Friedman and Schwartz
explain why the Fed did not act?
• Up to end of 1930
– What is the Fed concerned
about?
– How does it react to banking
failures?
• Who was Benjamin Strong?
• New York Fed v. Board of
Governors?
• What could the Fed have
done 1930-1931?
• What does Congress do?
27. Why didn’t the Fed act?
• Beginning in 1931, Friedman and Schwartz argue that Fed
could have expanded but chose not to.
• In diary of Charles S. Hamlin member of the FR Board, he
wrote during August 1931 that Open market committee
voted 11 to 1 against $300 million open market purchase
of bonds---reduce it to $120 million.
• Governor Mayer of the Board worried about inflation.
• Members of the regional banks did not grasp the extent of
the crisis.
• Pressure from Congress---open market operations of $1
billion. Until Congress adjourns.
• After Britain leaves gold in September 1931, gold drain
starts. Dollars exchanged for gold---Fed’s reserves fall, it
is afraid that further expansion will lead to greater loss of
gold----constrained by the gold standard. Reserves falling
after UK goes off gold in 1931, must retain high interest
rates.
28. Understanding the Great Depression:
Four Basic Questions
1. Why it Began?
2. Why so Deep?
3. Duration?
4. Recovery?
29. Understanding the Great Depression:
Four Basic Questions
1. Why it Began?
Business Cycle Peak 7/8-1929, Federal
Reserve’s tight policy
2. Why so Deep?
Banking Panics. Inaction of the Federal
Reserve
• Duration?
• Recovery?
30. How is the economy driven into a
severe depression by the declining
money supply?
What is the mechanism of
transmission?
Several Explanations……
31. Romer (1993) basic argument is simple
• Depression is the result of a series of aggregate demand
(monetary) shocks that moved economy down an
upward sloping aggregate supply curve.
Price Price
Level Level
Output Output
32. Romer (1993) basic argument is simple
• Depression is the result of a series of aggregate
demand (monetary) shocks that moved
economy down an upward sloping aggregate
supply curve.
• Result is two problems: (1) unemployment and
(2) deflation.
• Unemployment:
– Key point is the upward sloping supply curve. Wages
and prices not perfectly flexible in 1920s and 1930s.
– Why did they become less flexible? Some studies
point to turn-of-the-century change in labor contracts,
World War I or desire of business to keep demand
strong.
– Wage and price stickiness means that aggregate
demand shocks will have real effects.
34. How did deflationary shocks affect the
economy?
• Conventional 19th century view: fall in wages and
prices raises stimulate investment, countering
shock….but not in sticky price world.
• How did the monetary shocks hurt the
economy?
– Explanation 1: High real interest rate hypothesis:
Deflation affects expectations. Deflation generates
expectations of higher real rate of interest, raising real
rates and driving down investment
– Explanation 2: Debt-Deflation hypothesis:
Unanticipated inflation increased real debt, increasing
defaults and thus depressing supply of credit
35. Rising Real Interest r = i – p(expected)
Rates—Did the Fed
understand?
• Nominal commercial paper
rate 1927.4 to 1928.4 rises
from 4.0% to 5.5% and the
realized real rate from 5.6% to
9.5%.
• Rational expectations
estimates by Romer of the
expected real interest rate are
shown to rise----implying
higher anticipated interest
rates.
• Interest sensitive industries
begin to slow in 1929: building
permits and automobile
registrations.
36. • Sources of the onset—1929-1930/1931 contrasts
previous experience
• The decline in consumer spending and fixed investment
that are the key elements that need to be explained.
39. Debt Deflation
Hypothesis:
Hamilton looks at
the futures
markets for
predictions of
future prices----
errors random until
1930s when
underestimate
deflation
seriously----don’t
believe that crisis
will continue
40. Klug, Landon-Lane and White looked at the forecasts of
Railroad Shippers and found huge cumulating errors in
forecasts of carloadings---businessmen keep thinking that
recovery is around the bend.
20
10
0
p rc n g e r
e e ta e rro
-10
-20
-30
-40
-50
12
98 13
90 13
92 13
94 13
96 13
98 14
90
Y a a dQ a r
e r n u rte
41. Bernanke’s Contribution—a Third Factor
• In addition to monetary collapse, there was a
disruption of intermediation.
• Bernanke (1983): banks play special role for
firms that cannot issue bonds and stocks. When
banks fail the information and relationships are
lost and the cost of credit intermediation rises.
Costs include screening, monitoring, and
accounting costs as well as expected losses
from bad borrowers.
• Major contribution to economic decline 1931 and
1932.
42. Banking crises an
important
determinant of
loans as much as
industrial Panic
production. begins
Liquidation of loans
after stock market
crash
But then credit
declines little even
though IP falls 25%
until banking
crises.
43.
44. Understanding the Great Depression:
Four Basic Questions
1. Why it Began?
Business Cycle Peak 7/8-1929, Federal
Reserve’s tight policy
2. Why so Deep?
Banking Panics. Inaction of the Federal
Reserve—prolonged monetary contraction
• Duration?----Clearly inaction plays a role
—what else?
• Recovery?
45. What about Fiscal Policy—Deficit
Spending?
Price Price
Level Level
Output Output
46. Fiscal Policy?—Deficit Spending?
Federal Deficit as Percentage of GDP
In 2005---it was -2.6%
10
8
6
4
2
Percent
0
1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939
-2
-4
-6
-8
-10
Actual GDP Full Employment GDP
47. Industrial Policy?
• Specific Intervention in industry?
• National Industry Recovery Act (NIRA) of 1933
created the National Recovery Administration
(NRA). (Declared unconstitutional May 1935)
• National Labor Relations Act (1935) that
promoted unions and Fair Labor Standards Act
(1938) that set minimum wages in certain
industries and regulates working conditions.
• NRA established guidelines that raised nominal
wages and prices and encouraged higher levels
of employment by work-sharing reductions in the
length of the work week.
48. Industrial Policy
• Weinstein (1980), using
aggregate monthly data on
hourly earnings in
manufacturing, he found that
the NIRA raised nominal wages
directly and indirectly by raising
prices. Econometric estimates
that average hourly earnings
would have been 35 cents not
60 cents.
• Result----higher wages create
more unemployment and
increase the duration of the
depression because of higher
costs to producers---
counterproductive
• Shift in the Aggregate Supply
Curve
50. Recession of 1937-1938
• Did the Fed learn its lesson?
• Rising excess reserves held by banks—
Fed worries about inflation potential and
wants to induce lending.
• Uses new tool of required reserves.
Required reserve ratio doubled.
• Result? Banks raise their excess reserves
and huge monetary contraction.
51. Understanding the Great Depression:
Four Basic Questions
1. Why it Began?
Business Cycle Peak 7/8-1929, Federal Reserve’s
tight policy
2. Why so Deep?
Banking Panics. Inaction of the Federal Reserve.
Prolonged Monetary Contraction
3. Duration?
Continued Monetary Policy Mistakes, Fiscal Policy
not tried. Industrial Policy makes things worse.
• Recovery? Why?
52. Recovery, 1934-1937….why?
• Real GDP grows at
10% p.a.
1934-1937.
• But real GDP on
reaches 1929 peak
in 1937 and trend
path in 1942.
• What drove the
recovery.
• Friedman and
Schwartz (1963)
and Romer (1992):
huge increases in
the money supply.
55. How was the money supply increased?
• F.D. Roosevelt takes emergency powers granted by
Congress in the 100 days.
• FDR allows the dollar to depreciate—sets new value for
gold in 1934: from $20.36 per ounce to $35 per ounce.
• Huge revaluation of big U.S. gold stocks. Treasury
issues gold certificates equal in value to increase and
deposits them with the Fed. As government spends
them, they enter the monetary base. High powered
money increased 12% between April 1933 and April
1934.
• Devaluation also improved the competitiveness of U.S.
goods—rise in the trade balance.
• Devaluation attracted capital flows from Europe,
especially with Hitler’s rise to power. High powered
money rises 40% from April 1934 to April 1937.
• Result: real interest rates fall and recovery of investment
and consumer durable spending.
58. Understanding the Great Depression:
Four Basic Questions
1. Why it Began?
Business Cycle Peak 7/8-1929, Federal Reserve’s
tight policy
2. Why so Deep?
Banking Panics. Inaction of the Federal Reserve
Prolonged Monetary Contraction.
3. Duration?
Continued Monetary Policy Mistakes, Fiscal Policy
not tried. Industrial Policy makes things worse.
4. Recovery?
Monetary Expansion
59. Some Effects of the Great Depression
1. Activist Monetary Policy
2. Activist Fiscal Policy---idea of cyclically
balanced budget
3. Insurance and Regulation of the Financial
Sector
4. Agricultural Regulation
5. Growth of Government and shift in Federalism
6. Growth of Unions
7. Genesis of Social Security
8. Smoot-Hawley Tariff of 1929 to the WTO
9. The IMF and World Bank