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STOP BLAMING FDR


Paul Krugman and other economists have been attributing the 1937 recession to actions by FDR. They say he was merely following advice regarding the attempt to cut spending and balance the budget. However, whatever FDR did, there still would  have been a recession. This is because the Fed, which is independent of the executive, raised the reserve requirement substantially during the same period. From 1917 until August 1936 the Central Reseve City Banks had a reserve requirement of 13% Starting if August of 1936, through May if 1937 , the Fed raised the rate to 26%. The rate for Reserve City Banks went from 10% to 20% an d for country banks the rate went from 7% to 14%.

 The reserve requirement is the percentage of deposits that banks are required to hold at the Fed. This is money that cannot be loaned out. If the reserve requirement is raised banks have to either gather in a large number of new deposits and/or reduce lending. Given that the recovery was still ongoing, substantially increasing deposits was problematical. Instead, given the substantial increase in the Reserve Requirement, banks had to virtually halt all new lending. This alone would have caused what we now call a recession. (Note: I believe that FDR coined the term "recession" as a description of a slowdown in economic activity at this time)

 

So stop blaming FDR.


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Don't tell us, tell the Republicans, they are the ones propagating the lie that FDR prolonged the Great Depression.

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Yeah, Grouch has that right. Back in the sixties, the Reps were still trying to dismantle Social Security, government employment programs...anything that helped the little guy or gal.

I still see FDR as the greatest president of the 20th century. Everything coming at him at once, but when he came to a fork in the road, he took it.

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dickday: They're still trying to dismantle the New Deal. Now they are doing it by creating "BENEFITS" such as the drug plan and the option to get private companies providing medicare benefits that are designed to bankrupt the programs. Then they'll say "..see we told you they couldn't work..."

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Former Corporate Treasurer in multinational corporation. Currently teaching Economics and Finance at the college level. BS, MA, MBA

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