Jump to content
House Price Crash Forum
Sign in to follow this  
Wait & See

1929 - The Great Crash

Recommended Posts

"With easy credit and disposible income, Americans were looking for ways to become even richer".

lol. Debt = Wealth.....even in 1929.

Edited by Wait & See

Share this post


Link to post
Share on other sites

Quote -

"We hear the same thing in each bubble. This time it's different."

Same old sh1te this time too. This time it's..........the same as every other bubble.

Bankrupt time for everyone!!

Edited by Wait & See

Share this post


Link to post
Share on other sites

The policy of cheap money was not the reason for the housing boom, but was one cause among several. This thesis does not seek to examine the economic reasons for the Depression which occurred in the industrial world. It will be accepted that the economic downturn in Britain 'was the consequence of depression abroad, and depression abroad was initiated by the collapse of the United States boom...In a very real sense, therefore, the cause of the slump in Britain was the collapse of the upswing in the United States' (8).

The government sought to restore and re-create the conditions under which industry and commerce could expand again, a cheap money policy was one of the options used. They had to maintain prices, and therefore profits, and ensure that the pound was competitive. Access to cheap money and easy credits would encourage industry to re-equip and export manufactured goods whilst at the same time supplying the home market. A limited number of public works were supported by grants or loans, such as the building of the Cunarder and the Queen Mary, the provision of new telephone exchanges and an extension to the Piccadilly and Central lines on the London underground. The Treasury's view of public works was that they simply divert money from normal trade to abnormal relief work so it was better that credit should be used for normal trade and not hot house schemes. Keynes' arguments, which he had been putting forward since 1928, urged a large volume of public works, were not followed in the early part of the 1930s. In an attempt to harness public opinion Keynes often wrote in newspapers. His article in the Evening Standard of 31 July 1928 called 'How to Organise a Wave of Prosperity' said that 'a programme of national development would start a cumulative upward movement' (9). This article was a simple and clear statement of his analysis which was to be later found in his Treatise on Money where he defined the notion that the disequilibrium between savings and investments provided an explanation as to why Britain was caught in a low employment trap (10). 'When we have unemployed men and unemployed plant and more savings than we are using at home, it is utterly imbecilic to say that we cannot afford these things. For it is with the unemployed men and the unemployed plant and with nothing else, that these things are done' (11). Involuntarily the government was obliged to engage in public expenditure as a result of the building of new private houses by developers which demanded new roads, public services, schools and hospitals. Later in the decade, in 1935, the Treasury did come to the view that public works could have a part to play in the national government's recovery policy. Ignoring the manner in which world trade was developing into newer industries, the main emphasis for public works was to be in those areas where the old industries had formerly flourished. Regional development was given in the form of ' public investment in the depressed areas...in order to spread over the whole country a burden which has fallen with particular force on certain districts' (12).

Cheap money appeared to offer protection against a total collapse of the economy and civil unrest. But, 'The sluggishness of the capital markets [the Stock Exchanges] defied the stimulation afforded by cheap money. By the end of 1930 the New York Federal Reserve Bank rate was 2 per cent, whereas at the time of the stock-market collapse it had been 6 per cent. The Bank of England rate had likewise been reduced from 6.5 to 3.5 per cent, and the open-market rate had fallen still more steeply' (13). The fall of the open-market interest rates in Britain had a profound effect on building societies, as will be shown later. The cost of borrowing was lowered as the bank rate was reduced from 5 per cent in February 1932 [6 per cent in September 1931] to 2.5 per cent by April and finally 2 per cent by June 1932. There was no change in the rate until 24 August 1939 (14). In addition, the Bank of England took action to enlarge the cash base of the London banks by buying up securities and thus put more money into the banking system. A total of £2,597 million worth of gilts were converted or bought for cash in 1932 and £236 million in 1933, compared with £8 million in 1931 (15). It was a large scale operation designed to produce liquidity within the banking system and capital markets. By July 1932 interest rates were at a new low level but the advances to customers were also down from £919 million in 1931 to £844 million in 1932, while the investments of the Banks rose between 1931 and 1932 from £301 million to £348 (16).

The money market rates were affected by the lowering of interest rates, and the yield on 2.5 per cent consols fell from 4.39 per cent in 1931 to 3.74 per cent in 1932 and down to 2.89 per cent by September 1935. For the big commercial depositors, the rates fell even more and sharper. The rates for Treasury Bills fell from an average of 3.59 per cent in 1931 to 1.49 per cent in 1932, and 0.59 per cent in 1933. Commercial money placed on call earned 1.25 per cent, 60 day commercial bills 2.5 per cent, with a risk attached should the borrower default. The average rate of discount on bonds over a 5 year period from 1925 to 1929 was £4 16s 11p while in the period 1930 to 1939 it was £2 17s 7p, a drop of 45 per cent (17).

....

Copy and pasted from

http://www.pre-war-housing.org.uk/the-effect-of-the-cheap-money-policy-on-interest-rates.htm

Share this post


Link to post
Share on other sites

The government sought to restore and re-create the conditions under which industry and commerce could expand again,..

And all those years later and they're still trying :lol::lol::lol:

As Sir Mervyn - One Of The Greatest Financial Incompetents Ever said to the incompetent politician at the enquiry "Why don't you just listen you dolt and one of these days between us we might just get it right - or not"

Share this post


Link to post
Share on other sites

. The cost of borrowing was lowered as the bank rate was reduced from 5 per cent in February 1932 [6 per cent in September 1931] to 2.5 per cent by April and finally 2 per cent by June 1932. There was no change in the rate until 24 August 1939 (14).

....

Copy and pasted from

http://www.pre-war-housing.org.uk/the-effect-of-the-cheap-money-policy-on-interest-rates.htm[/size][/font]

Oh hell so we have 0.5% for another 4 or 5 years?!

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.