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Originally posted by DOOMBOT I did answer why the US stayed in a Depression for 15 years. I also admitted I don't know anything about the countries who weren't on a gold standard.

I'm asking about more than just the United States. Forget about the United States for a second. Why did the countries who stayed on the gold standard suffer most from the Great Depression?

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Let me ask you this. Did the countries who were off the Gold Standard have a "New Deal?"

The premise of the question is wrong. The failure of the Federal Reserve to increase the money supply and the collapse of the financial system caused the severity of the Great Depression.

Let's take a look at the UK which abandoned the gold standard in 1931. The British had seen the deflation occurring the United States with no response from its central bank. The British could reliably predict the same occurring in their economy as the Great Depression spread across the Western world. Runs on the currency caused by the convertibility of paper currency into gold is a primary reason as to the severity of the Great Depression. So it should no surprise to you that the British abandoning the gold standard, and thus, suspending convertibility of the currency into gold, spared them the ravages that affected countries like the United States and France. Actually, these countries more than abandoned the gold standard. They were forced off it. Even the United States had to suspended gold convertibility.

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Originally posted by DOOMBOT http://www.federalreserve.gov/BOARD...108/default.htm

Even the Federal Reserve admits it should have increased the money supply. Nothing new here...Bernanke also said, "I was not going to be the Federal Reserve chairman who presided over the second Great Depression." And he didn't. His Federal Reserve duly increased the money supply when the subprime crisis hit.

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Originally posted by Communist I'm asking about more than just the United States. Forget about the United States for a second. Why did the countries who stayed on the gold standard suffer most from the Great Depression? The premise of the question is wrong. The failure of the Federal Reserve to increase the money supply and the collapse of the financial system caused the severity of the Great Depression. Let's take a look at the UK which abandoned the gold standard in 1931. The British had seen the deflation occurring the United States with no response from its central bank. The British could reliably predict the same occurring in their economy as the Great Depression spread across the Western world. Runs on the currency caused by the convertibility of paper currency into gold is a primary reason as to the severity of the Great Depression. So it should no surprise to you that the British abandoning the gold standard, and thus, suspending convertibility of the currency into gold, spared them the ravages that affected countries like the United States and France. Actually, these countries more than abandoned the gold standard. They were forced off it. Even the United States had to suspended gold convertibility.

And when the US did suspend the gold standard, why did it take until the beginning of the War for the Depression to end?

Also, I'm interested in what your thoughts are in regards to the second to last link I posted and the fact that the US had more then enough gold reserves to expand the money supply to "Save" the US from Depression. This little fact shows us that the US didn't really seem to be restrained by being on a gold standard as one may typically believe.

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Originally posted by Communist Even the Federal Reserve admits it should have increased the money supply. Nothing new here...Bernanke also said, "I was not going to be the Federal Reserve chairman who presided over the second Great Depression." And he didn't. His Federal Reserve duly increased the money supply when the subprime crisis hit.

And still we have rising foreclosures, rising job losses, rising commercial loan losses and more ARMs to reset.

In addition, to go off topic just a little, what are your thoughts on the Depression of 1920 and how the government decided to handle that situation and it's outcome?

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Originally posted by DOOMBOT And when the US did suspend the gold standard, why did it take until the beginning of the War for the Depression to end?

When a recession hits and the money supply falls precipitously, the action of increasing the money supply must be made quickly and without delay. It turns out the Federal Reserve did not do that at all, so it should be no surprise that even when gold convertibility was suspended, the economy didn't immediately recover. The genie was already out of the bottle. The financial system had already collapsed. It's like asking why a patient didn't recover when given a blood transfusion after already dying.

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Also, I'm interested in what your thoughts are in regards to the second to last link I posted and the fact that the US had more then enough gold reserves to expand the money supply to "Save" the US from Depression. This little fact shows us that the US didn't really seem to be restrained by being on a gold standard as one may typically believe.

How do you devalue a currency if it is pegged at a fixed price to gold? In addition to the effect of gold hoarding and a run on the currency. Even if the US had the room in the 1930's to increase the money supply, it impossible for gold production to equal that of the overall economic growth. Growing economies need growing money supplies. Growing economies need a money system which is able to rise and fall based on the needs of that economy, not the quantity of gold supplies and production. Yes, back then, they had the gold supply to be able to increase money supply. Today, that is not the case. There is barely enough gold to cover half the current money supply.

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Originally posted by DOOMBOT And still we have rising foreclosures, rising job losses, rising commercial loan losses and more ARMs to reset.

That's expected in a recession. It's a correction. Why does that surprise you. The key is the financial system did not collapse. Their primary goal was to prevent a systemic collapse of the financial system. The financial system did collapse in 1933. It did not in 2008. This isn't the Second Great Depression and Bernanke made sure of that.

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Originally posted by Communist When a recession hits and the money supply falls precipitously, the action of increasing the money supply must be made quickly and without delay. It turns out the Federal Reserve did not do that at all, so it should be no surprise that even when gold convertibility was suspended, the economy didn't immediately recover. The genie was already out of the bottle. The financial system had already collapsed. It's like asking why a patient didn't recover when given a blood transfusion after already dying.

But when the government suspended the gold standard in 1933, I believe it was, the money supply increased. So again, I ask, why did it take so long to get out of the Depression once the money supply increased?

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How do you devalue a currency if it is pegged at a fixed price to gold? In addition to the effect of gold hoarding and a run on the currency. Even if the US had the room in the 1930's to increase the money supply, it impossible for gold production to equal that of the overall economic growth. Growing economies need growing money supplies. Growing economies need a money system which is able to rise and fall based on the needs of that economy, not the quantity of gold supplies and production. Yes, back then, they had the gold supply to be able to increase money supply. Today, that is not the case. There is barely enough gold to cover half the current money supply.

There was no need for an exorbitant amount of gold production to increase the money supply, though. They already had the excess reserves to do so.

Your last sentence, by the way, is irrelevant, even though it is not true.

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Originally posted by Communist That's expected in a recession. It's a correction. Why does that surprise you. The key is the financial system did not collapse. Their primary goal was to prevent a systemic collapse of the financial system. The financial system did collapse in 1933. It did not in 2008. This isn't the Second Great Depression and Bernanke made sure of that.

You are acting as if we are out of this mess, when we clearly are not. So be careful with your last sentence, as the show is not over.

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Originally posted by DOOMBOT In addition, to go off topic just a little, what are your thoughts on the Depression of 1920 and how the government decided to handle that situation and it's outcome?

Well, as you probably know, the economy was undergoing a transition from a wartime economy to a peacetime one. (Note how they suspended gold convertibility during the war.) The period of inflation during the war was followed by a period of deflation. Deflation of money supply should be met with a reduction in key interest rates and an increase in the money supply. Unfortunately, this was not done.

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Originally posted by DOOMBOT But when the government suspended the gold standard in 1933, I believe it was, the money supply increased. So again, I ask, why did it take so long to get out of the Depression once the money supply increased?

I just told you. The economy had already collapsed. Too little too late. I even gave you an analogy. I can't make it any simpler to you.

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There was no need for an exorbitant amount of gold production to increase the money supply, though. They already had the excess reserves to do so.

We'v already discussed the Federal Reserve's mistake in not increasing the money supply in 1929-1933.

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Your last sentence, by the way, is irrelevant, even though it is not true.

I kind of went off on a tangent, but no it's not wrong. The total amount of gold mined out of the ground equals about $4.5 trillion. The currency in circulation right now is about $9 trillion. You'r all for free markets and everything, but for some reason, you'r for a fixed price of gold, and a currency controlled by gold production instead of the free market.