Talk:Crash of 1929

Mild Downturn???

Friedman and Schwartz noted that during the sixty days prior to the Crash, productivity was falling at annual rate of 20%, prices were falling at an annual rate of 7.5%, and personal income was falling at an annual rate of 5% <1963, p. 306>. Raburn Williams <1994, pp. 138-9> notes that the index of industrial production declined from 125 in June to 118 in October, which is an annualized drop of around 27%. If a 20% (or 27%) annualized decline is "mild" I'd hate to see what is meant by severe. Russell D. Jones 18:29, 9 June 2010 (UTC)

So these data, it seems to me, show that the cause of the crash was that speculators finally came to realize that the commodity in which they were speculating was loosing value and they got out. That's the cause of the crash. This article tends to focus on what caused the speculative bubble in the first place. Russell D. Jones 18:51, 9 June 2010 (UTC)

Russell - I am pleased to have someone take an interest in this article - especially someone who is far better qualified to contribute than I am. As far as I can recall, I drafted the present version as a stopgap to provide the bare essentials necessary to support a reference to it in the article on the Great Depression. I should be glad to see it replaced by something more substantial.

I seemed to have accepted Bernanke's account of what happened without checking on the relevant statistics, and to have aped his use of the adjective "mild". I have now deleted the passage "comparatively mild", leaving unchanged the implication of the rest of the sentence that it was less severe than what followed. Perhaps I should have questioned Bernanke's diagnosis:

The correct interpretation of the 1920s, then, is not the popular one--that the stock market got overvalued, crashed, and caused a Great Depression. The true story is that monetary policy tried overzealously to stop the rise in stock prices.[1]

I don't feel inclined to return to the subject and review the evidence, but I should be more than happy if you were to do so. (The article on the Great Depression would, no doubt, benefit from your editing as well). Nick Gardner 09:15, 10 June 2010 (UTC)

PS: the language of the article is, at present, British English so I have reversed your Americanisation of one of its words. Nick

Sorry, I should have checked the Metadata before editing. Russell D. Jones

I'm now plowing through Bernanke and a host of others; I'm not beholden to a single "holy grail" theory: monetary theory doesn't explain mass psychological depression or mass political movements. I'd like to see Bernanke explain the rise of the national socialists in terms of M0, M1, and M2. Russell D. Jones

Overzealous or not Zealous Enough?

I don't agree entirely with quote from Bernanke above. While certainly I see that the crash was an effect of the softening economy (not a cause of it), I disagree that the Fed was overzealous in its efforts to stop the run-up in stock prices. The Fed obviously was not zealous enough to stop the speculation. It was, ironically, just enough zealous to stall the economy and send it into recession by the end of Summer 1929. Russell D. Jones 15:36, 10 June 2010 (UTC)

You might find it helpful to look up some of the references to these paragraphs in the CZ article on monetary policy. You will see that there is a lively current controversy concerning future central bank policy toward asset price booms. There have been no signs of a resolution that I am aware of. Nick Gardner. 19:28, 10 June 2010 (UTC)

The McGrattan and Prescott reference here may also be relevant. Nick Gardner 19:53, 10 June 2010 (UTC)

You may also be interested to know that, when he was Chairman of the Council of Economic Advisers, Ben Bernanke failed to spot, what turned out to be, a genuine copper-bottomed house price bubble until after it had burst (see his testimony to Congress here). There is a reference somewhere to a similar lack of concern on the part of the top economic guru in 1928/9, but I can't find it. Nick Gardner 20:21, 10 June 2010 (UTC)