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Thursday, December 31, 2009

The Great Depression: Part IV

Let's jump ahead in our on again off again trip down history lane. I promised a multi-part history of the Great Depression and that continues today. Let's just go forward into the 1930s before we return to the 1920s.
The money supply is the product of the monetary base times the money multiplier. Here are the sad pictures from the Great Depression. As you can see on the left, the money supply crashed and burned because on the right, the excess reserve and the currency holding ratios both increased and crashed the money multiplier. The Fed did nothing to the monetary base and the money supply fell by about 33%.

Here are similar graphs today. As the money multiplier has crashed and burned (on the left), the moneary base has increased like it was shot out of a cannon.
This is one of the main reasons why we have not slipped back to the 1930s. All you have to do is eyeball it to see. See?


Mike Powell said...

Is Hyper-inflation inevitable? What would be the severity of it?

Mike Powell said...


Randall Parker said...

Mike: Take it easy baby...this is not my full time job.

Hyper-inflation is out of the question and will not happen. I also bought Wachovia at $11.

If you want to know the severity of it just look at Zimbabwe. They have an inflation rate of over 1 million % if I am not mistaken. Total economic devastation is the result.

Anonymous said...

Thanks for all the info in 2009 Dr Parker..

Golf Tourney Champs 2010

Tee Davies

Tee said...

Happy New Year Dr. Parker, thanks for the insight in 2009!

Go Alumni tourney champs to be in 2010!


TJ said...

Over and Over I've read that the money stock during the Great Depression was beyond anemic. Great comparison charts.