Annus horribilis (1932, pt. 1 of 5)

Here are a few brief comments on the blogosphere before discussing 1932.

1.  Is there no one available with both a head and a heart?

Mark Thoma must be pretty influential; Obama picked Yellen right after he posted this call for new Fed governors.  Over the last year I have struggled with the issue of which group is more appalling; right wing economists who opposed monetary stimulus in 2008-09, or left wing economists who didn’t think it is was possible to use monetary stimulus once rates hit zero.  Last year I had this post on Yellen.  In another post (I can’t find) I argued that her failure to understand that monetary stimulus was still possible at zero rates should be an automatic dis-qualifier for the Board of Governors, roughly equivalent to a Supreme Court nominee who opposed Brown vs. Board of Education.  Some will say “but at least she’s a dove.”  It’s a given that Obama was going to appoint non-hawks, what we needed was someone who also understood that the Fed was capable of actually doing something.  Rumors are that only one of the three appointees will be an expert on monetary policy.  Let’s hope this isn’t the one.

2.  Yglesias vs. Krugman

Matt Yglesias makes the following point in a discussion of the Chinese yuan:

Meanwhile, if you ask me this inflation tends to vindicate China’s earlier much-complained-about currency policy. Keeping the renminbi cheap was a form of monetary stimulus that kept the economy growing throughout a global downturn. Now that Western demand is increasing again and China’s exports are rising rapidly you’re starting to see some inflation, which is precisely what happens as you come to the end of a successful stimulus cycle. Now it’s time for policymakers to start backing off from these measures.

I think that is about right.  During 2008-09 I strongly opposed attempts by Krugman and others to pressure China into a strong yuan policy.  At the time I suggested that at some point during 2010 they might want to consider appreciating the yuan.  If it happened tomorrow, in three months, or in six months I’d be fine with that.  If they wait a few years I might start gently chiding them to raise the yuan for their own good.  But never, ever, because it benefits the US.  They are rather nationalistic, and outside pressure is just as likely to backfire.

3. Tax burden tables using income in the denominator are meaningless.

In this post Krugman criticizes Ryan’s tax plan because the top tax rate is only 25%.  Given how much this country spends, Krugman is right.  If we are going to switch to a consumption tax (which is what Krugman claims the Ryan plan is) then the top rate needs to be closer to 40%.  But the chart he uses to illustrate this point is meaningless, as it divides taxes by current income, rather than consumption.  As a result Krugman makes it look like the rich would only pay 12% under the Ryan plan.   Krugman’s not the only one to do this, but it really annoys me when I read this sort of nonsense.  I don’t have time now, but this summer I plan a long post on why the income tax is widely misunderstood by progressives.  It is a moral abomination, and grossly inefficient as well.

4.  Who’s promoting loan sharks?

I must have missed something in this Krugman post.  I thought the standard view among economists (yes, I know, excluding Adam Smith) was that usury laws were counterproductive because they merely forced people to go to loan sharks.  In that case not only did borrowers have to pay high interest rates, but your legs were broken if you couldn’t repay the loan.  Yet in this post Krugman seems to be criticizing those who oppose usury laws.  What am I missing?  Is there new research out there suggesting usury laws are actually good?  Or is this just one more example of Krugman moving away from economic orthodoxy, like his “bizarre” recent claim that unemployment insurance doesn’t raise the unemployment rate?  (Check out this reply from David Henderson.)

Here’s the first part of the 1932 chapter (which supports 123’s theory of Congressional markets):

Chapter 6.  The Liquidity Trap of 1932

During 1932 and 1933 the U.S. embarked on two important policy experiments that would have a profound impact on the future course macroeconomic theory and policy.  In chapter 13 I will show that Keynesian macroeconomics was partially based on a misreading of the impact of these two policies.  In this chapter we will focus on the first of these experiments, the open market purchase program of 1932.  Then in chapter 8 we will consider an even more dramatic policy experiment, the National Industrial Recovery Act of 1933.

We saw that 1931 began with some promising signs of international monetary cooperation, but ended in a climate of bitter recriminations over war debts, currency depreciation, and tariff policies.  In some ways 1932 was the reverse, with the US economy doing very poorly until July, when both stock prices and industrial production hit their depression lows, and then experiencing a mild recovery in the late summer.  But that recovery fizzled out after a few months, as Hoover election gaffs and uncertainty created by the Presidential interregnum triggered a severe dollar crisis.  In some ways it makes more sense to view May 1932 to July 1932 as a single annus horribilis, which essentially represented the second and decisive phase of the Great Contraction.

The dollar crisis which began in late September 1931, resumed in the spring of 1932, and reached its greatest intensity in early 1933.  There is an ongoing debate about whether this crisis significantly constrained Fed policy.  Temin and Eichengreen challenged Friedman and Schwartz’s claim that the gold standard was not a binding constraint on Fed policy, particularly after February 1932 when the Glass-Steagall Act greatly augmented the amount of “free gold.”  They argued that it was fear of a run on the dollar that prevented the Fed from moving toward a more expansionary policy after Britain left the gold standard.

Much of the debate centers on how to interpret the open market purchase (OMP) program of 1932, which in retrospect can be seen as a key turning point in American monetary history.  During the peak period of April-June 1932 the Fed purchased government securities at the rate of between 50 and 100 million dollars per week, and yet the base increased only slightly and the broader monetary aggregates continued to decline.  Furthermore, the program was accompanied by sharp declines in stock prices, commodity prices, and industrial production.  Its perceived failure led to widespread doubts about the efficacy of monetary policy.

From a closing value of 88.78 on March 8th, the Dow fell almost continuously to its Depression nadir of 41.22 on July 8, 1932.  Perhaps the most fascinating question arising out of this episode is whether the OMPs helped mitigate an otherwise disastrous set of exogenous shocks, had no impact on the economy, or actually worsened conditions by reducing confidence and increasing hoarding.  Temin and Eichengreen argued that the OMPs did reduce confidence and that the resulting outflow of gold prevented the program from having an expansionary impact.

Bernanke’s (1995) “multiple monetary equilibria” approach suggests that the spring OMPs might even have had a contractionary impact if they led to fears of dollar devaluation, and if this caused private and foreign central bank gold hoarding to increase by more than the decrease in the Federal Reserve’s demand for gold.  We will examine this problem carefully in section 6.b.  But first it will be helpful to look at how financial markets responded to some of the major non-monetary policy shocks of 1932.

6.a  Congressional Initiatives and the Run on the Dollar

The German reparations issue continued to dominate the financial news during the first part of 1932.  There was concern that even solvent German institutions would be unable to make scheduled debt payments if the Reichsbank imposed exchange restrictions to facilitate reparations payments.  On January 6 the Dow jumped 7.1 percent and the price of YPBs rose 10.7 percent on rumors that France would acquiesce to a cancellation of reparations.  A January 10th NYT headline read “Stocks Up $3,000,000,000 in Four-Day Rally; Debt Outlook Held a Factor in Market’s Rise”.  The story noted that “Several factors have given new hope to the financial community, among the most prominent of which were the meetings of Adolf Hitler with Chancellor Bruening in Germany, out of which came the feeling that the international debt situation would be clarified.”  Commodity prices also rose sharply during that period.  Table 5.1 shows that movements in the Dow and the price of YPBs remained strongly correlated throughout the first half of 1932.

During December 1931 and January 1932 there were renewed outbreaks of banking panics, and during February the financial press became concerned that currency hoarding was impeding Federal Reserve attempts to adopt a more expansionary policy.  The Hoover administration used everything from moral suasion to the issuance of small denomination Treasury securities[1] in a futile attempt to dislodge private currency hoards.

Monetary policy in the U.S. was complicated by the legal requirement that Federal Reserve Notes be backed with either gold or eligible paper.  With insufficient holdings of eligible paper, the Fed was forced to maintain a gold ratio far above the legal minimum.  On February 10, 1932, President Hoover met with Congressional leaders and worked out a plan to give greater flexibility to the Federal Reserve.  As embodied in the Glass-Steagall Act of 1932, the legislation also allowed the Fed to use government bonds as collateral, thereby greatly augmenting its holdings of free gold.

The response of the financial markets was wildly enthusiastic, with the Dow advancing by 9.5 percent on February 11th.  On the following day the plan was made public and the NYT headlines clearly indicate that the proposed legislation was perceived as an expansionary move:  “Congress Gets Credit Expansion Bill; Hailed As Marking End Of Deflation; Stock Prices Up $3,000,000,000 Here”.  Although financial markets were closed on the 12th, the bill sailed through both the House and the Senate banking committees, and on 13th the Dow jumped another 9.2 percent, completing the largest two-day rally in modern stock market history.[2]  The February 14 NYT headline noted “Stocks And Bonds Rise In The World’s Markets; Commodities Also Gain” and during March there were a few signs that the economy might be stabilizing.

The positive response of stocks and commodities to Glass-Steagall was not surprising.  The rally in T-bonds after the announcement was attributed to the perception that Washington was engaging in a carefully controlled inflation,[3] meaning that it would not lead to the dollar being devalued.  But then why, after stabilizing for four weeks, did the stock and commodities markets decline sharply after mid-March?

[1]  These securities, dubbed “Baby Bonds”, were issued in denominations of $50, $100, and $500 and carried a coupon rate of 2 percent.  The bonds were sold door-to-door by volunteers in Hoover’s anti-hoarding program.  In late March, 1932, demand for the notes all but dried up, and the program was discontinued after the issuance of only $28 million worth of bonds.  This episode would seem to contradict the “legal-restrictions theory” of money.

[2] It is worth recalling that real business cycle theory would predict no response of real stock prices to the Hoover announcement.  It could be argued that real stock values increased because investors perceived that inflation would redistribute wealth from bondholders to stockholders, but corporate bonds also rallied strongly on the announcement.

[3]  See the February 17th NYT.  Press accounts often used a less pejorative term such as ‘reflation’.

The model outlined in chapter 3 suggests that a decline in aggregate demand can result from increased currency demand (due to bank panics), an increase in the gold ratio (at the discretion of central banks), or a decline in the world monetary gold stock (due to fears of devaluation.)  There was a banking panic in the Midwest during late June and early July, but most of the stock market decline had already occurred by this time.  Instead, private and central bank gold hoarding seem the likeliest culprits for the spring downturn.  After increasing briskly during the period from October 1931 to March 1932, the world monetary gold stock leveled off during April, and then declined by $167 million over the following two months.  Yet in the face of this surge in private gold hoarding, gold bloc central banks continued to import large quantities of gold.  Table 3.4 shows that the gold reserve ratio in the gold bloc increased sharply enough to reduce the world price level by roughly 14 percent between mid-1931 and late-1932.[1]

After the British devaluation of 1931 many members of the gold bloc began shifting their reserve holdings from paper assets to gold.  Some historical accounts imply that this decision was almost inevitable.  Immediately before the spring 1932 bear market was about to begin, however, Wall Street was still uncertain as to whether European central banks would ultimately convert their dollar-denominated assets into domestic assets, or gold:

           “Under existing conditions it would be simpler and cheaper for the French bank of issue to recall its dollar balances through the exchange market by selling dollars for francs in Paris.  Whether it will pursue this course or insist on adding to its already large gold stocks in the face of an unfavorable exchange position remains to be seen.  If future sailings of French ships continue to carry consignments of gold to France, it will be concluded that the Bank of France is not merely desirous of recalling its foreign balances but wants in addition to obtain more gold.”  (NYT 3/9/32, p. 29)

The U.S. Congress was another source of uncertainty for the markets.  The amicable, non-partisan climate which greeted Glass-Steagall in February turned increasingly contentious as Congress attempted to close a huge budget deficit.  A March 10th NYT headline reported the first signs of growing opposition to the painful steps required to balance the budget: “Committee’s Report Defends Sales Tax; Opposition Growing”.  On March 9th the Dow had declined 2.1 percent, the beginning of a major bear market.  Although many of the declines accompanying Congressional disputes were modest is size, the pattern was clear enough that by early April, Wall Street traders were referring to a “Congressional market”.

[1] This figure actually applies to France plus ROW, but almost all of that increase occurred in the gold bloc.

Over the next several weeks the political climate continued to worsen.  On March 16th the Dow dropped 2.4 percent and the next day’s NYT headline read “Fifty Democrats In Bloc To Defeat The Sales Tax”.  On March 18th the Dow fell another 2.5 percent and the following day’s NYT reflected the worsening situation: “Democratic Leaders Deplore Tax Revolt”, “Leaders Are Bewildered”, and “Long Step Toward Disorganization Is Seen”.  By March 25th the NYT was reporting that “For the time being the financial community is absorbed – to the exclusion of almost everything else – in the fiscal problems of the Federal Government.”

There are many reasons why the tax dispute could have affected the stock market.  The most straightforward explanations would involve the traditional channels by which taxes impact aggregate supply and/or demand.  But traditional supply- or demand-side models cannot explain the stock market’s apparent support for (marginal income) tax increases to balance the budget.  Nor can this reaction simply be attributed to Wall Street’s blind acceptance of orthodox financial dogma.  In 1933, the stock market greeted the devaluation of the dollar with great enthusiasm, despite the fact that most leading financiers viewed devaluation as an even greater abomination than an unbalanced budget.

By late March it had become increasing clear that with ongoing budget battles “mischievous inferences are likely to be drawn in foreign financial centers.”[1]  On March 26th the Dow fell 2.9 percent and the following day’s NYT blamed the tax fight for not only the stock market decline, but also for declines in government bonds and the dollar.  During the period from March 23 to 28, T-Bonds fell nearly two points, their largest decline since the first week of January.  Finally, on March 29 and 30 the markets rallied modestly on signs of progress toward a balanced budget.[2]

Because the tax bill was so complex, there are numerous ways of interpreting the financial market’s reactions to Congressional deliberations.  For instance, April 1st NYT headlines noted both that “Market Off Sharply On Stock Tax Vote” and that “Bonus Advocates in House Ready to Pass Bill; Undaunted by President’s Threat of Veto”.  Replacing the sales tax with a stock transfer tax and/or higher marginal income tax rates could reduce aggregate supply, and thus could depress stock prices without significantly affecting the level of aggregate demand, or the dollar.  In contrast, the financial press viewed the Bonus bill, which would have financed $2 billion in accelerated veteran’s bonuses by printing fiat currency, as a reckless example of “greenbackism” that would trigger a loss of confidence in the dollar.

[1] NYT 3/26/32, p. 21.

[2] “Garner Gets Pledge To Balance Budget” (NYT, 3/30/32), and “293,500,000 In New Taxes Quickly Voted By House” (NYT, 3/31/32).

During April, the dollar came under increasing pressure.  Although by April 5th the French franc had risen to the gold export point, and U.S. gold exports were now expected, it was still “doubted that [gold] movement can obtain large proportions.”[1]  The April 8th NYT (p. 31) noted that “The foreign attack on the dollar began just before Easter [March 27], when the defeat of the sales tax in Congress led to the widespread belief in Europe that the United States budget would not be balanced”.  The weakening dollar and renewed fears of a gold outflow were accompanied by an 11.6 percent decline in the Dow between April 4 and 8.  By April 12, the NYT was reporting that:

           “The experience of recent gold movements has shown that the exports of gold are slow to have their normal depressing effect upon the exchanges of the countries to which the metal is shipped.  Presumably the reason is because the recent gold transfers have had nothing to do with normal capital movements.  As the product of disturbed confidence, they have had to run their course until the effects of whatever particular shock had set a gold flow in motion had worn off.” (p. 27.)

In other words, these gold flows did not represent the normal sorts of adjustments one sees in response to trade imbalances, but rather a decision by some countries to increase their gold reserve ratios out of fear that paper assets could be devalued.

[1] NYT 4/7/32, p. 33.

One puzzle presented by the spring 1932 dollar crisis is the failure of Treasury bond prices to decline sharply, as they had during the October 1931 crisis.  After the decline during late March, long-term T-bond prices recovered slightly and traded at 6 to 12 points below par during April, May, and June, before rallying to 97 in late July when the dollar crisis ended.  There are several possible explanations for the strength of T-bond prices.  The spring of 1932 was a period of severe depression and deflation, corporate default risk was soaring, and a highly aggressive open market purchase operation was driving T-bill yields to below 1/2 percent.  This is exactly the sort of period when one would expect T-bond prices to rally.  Thus the fact that they continued to trade at well below par could be viewed as a sign that other (hidden) factors were putting upward pressure on long-term yields.  One of those hidden factors was presumably fear of devaluation.[1]

Investors may have also taken a more benign view of the inflationary consequences of devaluation than during the October 1931 crisis.  Immediately after Britain left the gold standard the financial press looked back on the inflationary European devaluations of the early and mid-1920s.  By the spring of 1932, however, it was evident that (after rising modestly during late 1931), prices in Britain were again trending downwards.

[1]  Ferderer and Zalewski (1994) argue that during mid-1932 policy uncertainty also increased the risk premium in interest rates.



14 Responses to “Annus horribilis (1932, pt. 1 of 5)”

  1. Gravatar of Blackadder Blackadder
    12. March 2010 at 08:42

    The Krugman post on usury is even worse than you suggest. The bill in question would put a 36% interest rate cap on payday lending. That would drive the payday lenders out of business. The reason payday lending places charge such high rates of interest is that the are dealing in small loans for really short periods of time. Krugman’s own paper reported a while back that nonprofit payday lenders were charging in excess of 250% just to break even. The only way to support the bill in question (other than ignorance) is if you just think payday lending shouldn’t exist, ever, under any circumstances.

  2. Gravatar of Assorted Links: Janet Yellen Edition « It Don't Mean Much, These Seats are Cheap. Assorted Links: Janet Yellen Edition « It Don't Mean Much, These Seats are Cheap.
    12. March 2010 at 12:02

    […] Scott Sumner: In another post (I can’t find) I argued that her failure to understand that monetary stimulus was still possible at zero rates should be an automatic dis-qualifier for the Board of Governors, roughly equivalent to a Supreme Court nominee who opposed Brown vs. Board of Education…Some will say “but at least she’s a dove.” It’s a given that Obama was going to appoint non-hawks, what we needed was someone who also understood that the Fed was capable of actually doing something. Rumors are that only one of the three appointees will be an expert on monetary policy. Let’s hope this isn’t the one. […]

  3. Gravatar of Bill Stepp Bill Stepp
    13. March 2010 at 05:25

    Presumably some right wing economists opposed monetary stimulus in 2008-2009 because they wanted to get rid of the Fed and let the market determine what the supply of money and credit should be. Let’s press on to free banking and ditch the Fed.

  4. Gravatar of scott sumner scott sumner
    13. March 2010 at 06:46

    Blackadder. Excellent comment, that’s just what I expected. And yet Krugman suggests that only right-wingers could support interest rates above 36%.

    Bill, If that was their strategy, it backfired. Economic crises tend to make the government more powerful, not less. The Fed has responded to the big fall in NGDP by taking on lots of other roles, like buying all sorts of risky assets. They aren’t just doing monetary policy, they are directly allocating capital to politically favored industries like real estate.

  5. Gravatar of Doc Merlin Doc Merlin
    13. March 2010 at 08:46

    This is off topic, but I think I know where a lot of the wage stickiness is coming from. Public sector workers receive COPA increases when inflation is positive but when it is negative they don’t get negative COPA adjustments. This creates a lot of downward price rigidity.

    Anyway, now PPI is rising, again, faster than CPI; I see stagflation coming on, soon-ish.

  6. Gravatar of Doc Merlin Doc Merlin
    13. March 2010 at 08:47

    Oh, also, I’m in complete agreement with you guys on the Krugman article. The bill will kill quite a few types of lending.

  7. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. March 2010 at 12:22

    You wrote:
    “In another post (I can’t find) I argued that her failure to understand that monetary stimulus was still possible at zero rates should be an automatic dis-qualifier for the Board of Governors, roughly equivalent to a Supreme Court nominee who opposed Brown vs. Board of Education.”

    I may be wrong but I believe you’re referring to this post:
    “1. Many of the Fed presidents and Board of Governor members have banking backgrounds, and seem to be in way over their heads. Woodford has argued that when in a liquidity trap it is essential to engage in price level targeting, not inflation targeting. Without disrespect to any single member of the FOMC, how many of those members seem qualified to judge his arguments, merely on the basis of their background? Just so that this doesn’t sound too arrogant, I would be completely unqualified to serve on a board that oversaw banking regulation. Having a banking expert serve on the FOMC is essentially no different from having an accountant, economist, or engineer serve on the Supreme Court. Except the FOMC is much more important. Do we need banking experts at the Fed? Sure, if they are going to regulate banks. But they have no business being on the FOMC. The FOMC does not determine whether credit is easy or tight, it determines whether monetary policy is easy or tight.

    2. If I sat down and chatted with each individual FOMC member, I would probably have much more in common with the hawks than the doves. The hawks talk about controlling inflation expectations while the doves discuss “output gaps.” Like the hawks I want to target only a nominal variable, and ignore the output gap. Where I differ is that the nominal variable I favor targeting is NGDP, not P, and I want to target levels, not rates of change. In my view the doves are currently right for the wrong reasons.

    3. The other main problem is that the doves tend to be excessively “Keynesian” in their approach to monetary economics. Thus Janet Yellen, one of the most dovish Fed presidents, was quoted last year saying that the Fed could not ease monetary policy further once rates hit zero. At the time I argued that that sort of statement should instantly disqualify someone from serving on the FOMC.”

    It just so happens that I was rereading that post again today specifically because I was thinking about the Yellen appointment. I think that Yellen is naturally better than another hawk but then so would my cat (actually, as I think I’ve noted before, he’s a quick learner, and already knows a fair amount about monetary policy).

    Yes, it would be nice if we had a someone at the FOMC who really understood that monetary policy is still potent at the zero lower bound and yet had the gonads (unlike Bernanke) to stand up against Charles Plosser’s Captain Ahab-like obsession with slaying the great white whale of nonexistent inflation. How about Woodford, Gagnon or yourself? 😉

  8. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. March 2010 at 14:44

    On another note, as long as we’re talking about old posts the diagram is now missing from this post although it can be found in Tabarrok/Cowen’s Powerpoint slides of course:

    But your post is clear and makes much more sense with diagram 12.10. Can you replace the old digram link with another?

    P.S. If I ever teach macro I think would use the Tabarrok/Cowen text. My department (UD) is so right wing it practically makes Chicago look downright Marxist. They wouldn’t let me teach macro, only micro, although applied macro was my field. I think they were worried that I might mention such things as the unemployment rate, output gaps, the Phillips Curve, etc. not to mention this dude named Keynes.

  9. Gravatar of Michael Michael
    14. March 2010 at 02:02

    “Presumably some right wing economists opposed monetary stimulus in 2008-2009 because they wanted to get rid of the Fed and let the market determine what the supply of money and credit should be. Let’s press on to free banking and ditch the Fed.”

    I’m trying to envision the world where, in the event of a severe financial crisis, the government decides to step away from monetary policy completely and let the banks handle it.

    …Its not coming to me.

  10. Gravatar of scott sumner scott sumner
    14. March 2010 at 06:36

    Doc Merlin, It isn’t just downward wage rigidity, many public sector workers are actually getting pay increases.

    Sorry, but I don’t see inflation coming on. I wish you were right.

    Mark, Thanks for finding that. I actually think there might be a third one, which that post refers to. I guess I tend to repeat myself.

    Thanks for pointing out the missing graph. I’ll look into it when I get my book revised.

    Michael, Yes, that’s just not going to happen. If we are going to do major monetary reform it will have to be gradual, and done in good times.

  11. Gravatar of travisA travisA
    14. March 2010 at 11:14


    One thing that I am a bit confused on is the currency hoarding that you mention in this section of your book along with the simultaneous fear of dollar devaluation and gold hoarding.

    How would you reconcile these apparently contradictory impulses? One would think that a fear of devaluation would raise the price of other commodities, not only gold.

  12. Gravatar of Joe Joe
    15. March 2010 at 19:50

    On Unemployment: Every person on UI that turns down a position to keep looking means that there is still an open position in the economy that can be filled by someone else on UI. Also, the other major issue is that most firms will refuse to hire anyone who made a lot more in their previous position; these people will always be looking for the bigger paycheck. SO, the employment frictions go both ways.

  13. Gravatar of scott sumner scott sumner
    16. March 2010 at 11:02

    Travis, That is very complicated. Gold hoarding didn’t raise the price of gold, it raised the real value, or purchasing power of gold. Since the nominal price of gold is fixed under a gold standard, when it’s real value rises then the price of other goods must fall.

    The currency question is more difficult. The gold hoard put great strain on the economy, which caused many bank failures in the late summer of 1931, and again in February 1933. For many average Americans the whole devaluation worry was a distant problem, something that wasn’t discussed in the press and thus wasn’t worried about much. They were worried about their local bank failing, and thus hoarded currency. It was the savvy insiders who hoarded gold. On the other hand when FDR did devalue, he forced gold hoards to be redeemed at par value, so hoarders didn’t gain. Some may have smuggled gold to London, and gained by selling it there.

    I probablty need to say more about this issue, I agree that it is very confusing.

    Joe, I don’t follow your comment. Are you saying the total employment level is completely demand determined? That the supply of labor has no impact on equilibrium employment levels? Is so, I don’t agree, nor does the evidence support that position.

  14. Gravatar of Bitcoin Faucet Rotator Blog QE-zero Bitcoin Faucet Rotator Blog QE-zero
    10. April 2015 at 06:59

    […] of monetarists take asset prices as the best indication of monetary stance. Scott Sumner points out here, for instance, that US equity markets had one of their fastest two day rallies in history as […]

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