ECON 2200 Lecture Notes - Lecture 48: Openmarket, Commercial Bank, Discount Window
14 May 2018
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Department
Course
Professor
ECON 2200
Lecture 48
• August 1929: Fed increases DR
o This was a slap on the hand from the Fed for banks making loans
for margin purchases of stock
o Fed wanted to discourage speculations and decrease bank loans
for margin purchases
o Recall that October 1929: Market falls apart (first banking crisis?)
• September 1931: England suspends payments in gold (leaves the gold
standard)
• November 1931: Fed increases DR
o Recall that second banking crisis is in 1931
• March 1933: Fed increases DR
o Recall that third banking crisis is in 1933
o Open Market Operations (When Fed buys and sells Treasury
bonds)
→ NOTE: Fed buys bonds leads to increase in M
(expansionary monetary policy); Fed sells bonds leads to
decrease in M (contractionary monetary policy)
→ In October 1929, December 1930, August 1931, Fed buys
very modest (small) amounts of bonds – not enough to
increase M
In August 1932, Fed makes significant purchases of
$1.11 billion in bonds
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Document Summary
Note: fed buys bonds leads to increase in m (expansionary monetary policy); fed sells bonds leads to decrease in m (contractionary monetary policy) In october 1929, december 1930, august 1931, fed buys very modest (small) amounts of bonds not enough to increase m. In august 1932, fed makes significant purchases of. However, friedman and schwartz say it was too: what was the fed thinking? little too late , friedman and schwartz identify a power struggle within the fed"s leadership in the late 1920s and early 1920s between feds. Board of directors (in washington, dc) and the new york federal. Board of directors is concerned that buying bonds will decrease the gold reserves of the fed and the fed is afraid that it will not be able to maintain the gold standard. Fed was also concerned that buying would reduce commercial bank borrowing at it"s discount window .
