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Sunday, April 12, 2009
Monday, April 06, 2009
According to USA Today, About a dozen communities around the country are now printing and issuing their own currency, like the Detroit Cheers, Ithaca Hours, and Massachusetts Berkshares.
Although this practice did become widespread during the Great Depression, it was NOT because of bank closings, as the article mentions. Under the governship of Benjamin Strong before his untimely death before the Depression in 1928, the Federal Reserve of New York justifiably wielded its power to head off runs on banks by printing MORE currency and loaning more money to commercial banks and bank associations. This put a lot more currency in the hands of banks that customers thought were on the verge of collapsing.
Because of the nature of the industry, banks had access to only 5-10% of the cash needed to fulfill the withdrawal demands of every customer desposit. When customers got wind of a bank’s potential failure, they would rush to the bank to withdraw their own money. If the bank complied with every request, they were forced to seek emergency funds and loans from the Federal Reserve, other banks, or bank associations. So a bank run that wasn’t headed off could cause a domino effect. Strong's policy to supply the banks with a little more cash during bank runs saved dozens of bank closings during the 1920’s and actually delayed the Depression by at least 2 years.
After his death in 1928, the Federal Reserve, under EUROPEAN PRESSURE, was more scared about tiny fluctuations in inflation (that these emergency distributions of cash to banks caused) than they were about the closings of banks and the public's loss of confidence in the banking system. So when bank closings began in mid-1929, and in particular the collapse of the Bank of United States in New York in 1930, the Federal Reserve began REDUCING the printing of currency and loans to banks. This caused even more bank closings, eventually reaching into the thousands by 1933, costing Herbert Hoover the 1932 Presidential election.
So the Federal Reserve, under new direction and new policy at the beginning of the Depression was the REAL CULPRIT of the Depression, NOT PRIVATE BANKS. They simply didn't do their job and caused the largest economic failure in world history.
In response to a lack of federal notes, communities all over the United States started issuing their own currency. They saved a lot of local banks, local businesses, and jobs. But the Federal Government had created such a catastrophe; local banks and communities could only ride it out. And they would have helped end the Depression by 1936 if Roosevelt hadn't bankrupted the country with the "New Deal", precisely the formula that Obama is ruining the country with today.
Read the original article here: Communities print own currencies to keep cash flowing - USATODAY.com