Posted on 07/01/2013 7:28:17 AM PDT by SeekAndFind
Traditional presidential polls give Calvin Coolidge a low ranking. One reason for this is that he is often blamed for egging on the already boisterous stock market of the late 1920s, especially toward the end of his presidency. Particularly disparaging is John Kenneth Galbraith’s account that Coolidge said in 1929 that prosperity was “absolutely sound” and that equities were “cheap at current prices.” This assertion is said to have stoked market fires so that stocks continued heavenward during the first half-year of Herbert Hoover’s presidency. The crash, when it came, was therefore all the more violent.
Parts of this older narrative hold. Coolidge certainly did not explicitly tamp down the stock market. That omission deeply concerned Hoover, who better understood the details of credit and markets and accurately predicted the 1929 crash. But recent research suggests that Coolidge’s responsibility for the buildup to the crash was less than some historians have maintained.
On Jan. 5, 1928 the Dow Jones industrial average closed just below 200. Asked the next day at a press conference whether the flood of brokers’ loans fueling stock purchases was excessive, Coolidge made the most vigorous statement about markets he would utter all year: “The number of different securities that are dealt in on the stock exchange are very much larger than they were previously” and that he, Coolidge, hadn’t had “any indications that the amount [of brokers' loans] was large enough to cause particularly unfavorable comment.” The President’s statement, hyped in the press, startled investors and critics alike. As soon as his words became known, the Dow jerked up 1%. But no sustained rally materialized. Indeed, in the ensuing weeks the Dow fell back. Later, the great bull market regained true momentum, without any known boost from the White House.
(Excerpt) Read more at forbes.com ...
John Kenneth Galbraith, non-stop Coolidge critic, was the Paul Krugman of his day. About the time I earned my graduate degree in the spring of 1987, he wrote a much hyped article about how the Soviet model was the economic wave of the future and how America needed to reconcile itself to that fact and figure out how to make our economy work as well.
Indeed. Gailbraith was the lying, breathless, overhyped Grande Douche of economics in his day. Most of what he put on paper was an expression of his gargantuan ego, not actual economics.
RE: 1987, he wrote a much hyped article about how the Soviet model was the economic wave of the future and how America needed to reconcile itself to that fact and figure out how to make our economy work as well.
So, what did he say after the USSR imploded and dissolved?
I’ve never had the chance to hear or read JKG eat crow.
It was Bush’s fault.
He probably said something like “Yeah, sure, it imploded, but you should have a look at the USA in about 2013 or so.”
Thanks for posting. I’m reading Shlaes’ book on Coolidge right now.
JKG never admitted he was wrong and cannot now since he died a few years ago.
Is Shales’ book unbiased? Good? Thanks...
Like all of her books its a bit of a tedious read but lots of good insights on the era in general and Collidge’s rise and evolving philosophy in particular. It’s a nice escape to another time and iconfirmation that many events tend to repeat themselves.
John Kenneth Galbraith, the dunce from Dutton? Actually Iona Station, but Dutton sounds better and Iona Station is not really a town.
Is Shales’ book unbiased?
******
So far (still not halfway through the book) it appears she writes admiringly about Coolidge but is not outwardly defensive. Coolidge comes across as a very ambitious politican, but its hard to tell (at this point) whether that stems primarily from dedication to public service or personal quest for success. I’m mainly trying to get an understanding of how his economic views were formed.
Paul Krugman, who later won the Nobel Prize, in 1994 denigrated Galbraith's stature as an economist. In Peddling Prosperity: Economic Sense and Nonsense in an Age of Diminished Expectations, he calls Galbraith a "policy entrepreneur" – an economist who writes solely for the public, as opposed to one who writes for other academics, and who therefore makes unwarranted diagnoses and offers over-simplistic answers to complex economic problems. He asserts that Galbraith was never taken seriously by fellow academics, who viewed him as more of a "media personality". For example, Krugman believes that Galbraith's work The New Industrial State is not considered to be "real economic theory", and that Economics in Perspective is "remarkably ill-informed"
You can't make this stuff up. Libtards really do eat their own.
A Tale of the Ticker--Frank Crumit (1929)
I' m in the Market For You--George Olsen & His Music (1929)
Both the boom and the bust were creatures of the Fed. Read Anderson’s “Monetary History of the US” for the details.
The structure of the FED required rural banks to deposit their reserves in city banks, who deposited their reserves into big city banks, who deposited their reserves in NY banks. NY banks found they could loan out their money to purchase stocks at 10% margin (person 10%, bank 90% of value). That fueled the stock market boom.
In the 20s, the US was on the gold standard — the amount of gold in our vaults dictated how large our money supply could be. The FED followed this approach, but neglected the significance of the balances in checking accounts, just becoming popular. In 1926 they discovered that the actual money supply, including checking account balances, was 3 times larger than they had previously estimated. So the FED decided to reduce the money supply by 1/3.
They didn’t inform anyone of their screwup, neither US politicians nor foreign bankers, but started buying up the bonds needed by the banks to make loans. It took 3 years for it to bite the stock market and destroy the banks that had lent money on stocks with only 10% margin.
The FED continued buying the bonds through 1936, preventing even the rural banks from making loans to farmers to plant crops, resulting in their bankruptcys; and making it impossible for small city banks to make loans to retailers to purchase inventory for sale.
The result: while FDR was trying every unconstitutional scheme his brain trust could think of to get the economy moving again ... the FED kept reducing the money supply, making loans impossible to get, pushing the economy deeper into the depression.
A few years ago the FED chairman admitted that the FED screw up resulted in the depression, but that “We are smarter now and won’t make that mistake again.”
Without the FED purchasing the Treasury securities, the FedGov would not be able to maintain its criminal sized deficits.
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