Greenspan On The Great Depression, Before His Re-education

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.

Alan Greenspan 1966

So, following his reasonable analysis of the causes of the Great Depression, we find that it was the inflation of the money supply that was the culprit, not the constriction of the money supply as Ben Bernanke seems to think.

The Federal Reserve and our government are doing exactly the wrong things. The dollar is holding its value becuase the big banks are holding their dollars. They will have to start lending massively soon (the Obamites will force them to). At that point the dollar will begin to lose value rapidly. Bernanke will try to leave interest rates low, but he will be forced by the holders of dollars as foreign reserves to try to slow the inflation by raising rates and constricting the money supply.

That will complete the cycle that Greenspan indicated back in 1966.