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the roaring 20's hhmmm sounds familiar



The defeat of Woodrow Wilson by Warren Harding ushered in an unprecedented period of prosperity known as "the Roaring 20's. The primary engine for this economic expansion was the Federal Reserve's flooding of the economy with newly created, debt money, borrowed by the government during WWI.

SigningSubsequently, Fractional Reserve Banking allowed the Fed to increase the money supply by more than 61% within three years. Money was plentiful, and a steady increase in bank loans, coupled with the worry-free attitude of the American public propelled a continued rise in the economy. Stock-market speculation was rampant and businesses expanded and became strung-out on easy credit.

Concurrently the Fed, under the direction of Benjamin Strong, head of the New York Fed, shifted toward a monetary policy of open market operations. Under the guise of stemming a potential recession in 1923, the Fed made a large purchase of government bonds.

This purchase strengthened the "public perception" that expanding credit and introducing more currency into the system would have a more stabilizing effect on the economy than would dependence on a gold standard. (In actuality, when the Fed buys government bonds from the public the economy will shrink by 10 to 33 times the purchased amount, depending upon what the fractional reserve rate currently is.)

At the same time, Strong further consolidated the power of the Fed by promoting a policy of relations with the Bank of England and other international central banks. The Fed and its conglomeration of huge, international member banks had now set the stage for the most massive rip-off of the nation's economy to date.