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Money Supply during the Great Depression
Howard Richman, 2/27/2011

In Friday's posting, I compared the U.S. economy of 2010 to 1937, but the more accurate comparison is to 1936. As shown in the graph below, real GDP growth slowed in 1937 and it went into a double dip in 1938:


In 1936, the Federal Reserve overly expanded money supply. This resulted in increasing inflation in 1937, so  in 1938, the Federal Reserve clamped down so much on money supply that it actually caused deflation and negative growth, as shown in the chart below:

Money Supply and Inflation
Year 2010 1936 1937 1938
Change in M1 (Money Supply Measure) 8.2% 14.3% 4.4% -1.3%
Change in M2 (Money Supply Measure) 3.4% 11.3% 5.1% -0.4%
Inflation Rate (Consumer Price Index) 1.5% -1.0% 3.5% -1.8%
GDP Growth Rate 2.83% 13.5% 5.12% -3.44%

If 2010 is indeed like 1936, we can expect inflation to take off in 1937. This could cause a clamp down on money supply by the Federal Reserve in 2012, which could cause the economy to experience a double-dip.

[Note: I found the money supply and inflation statistics for the Great Depression here.]

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Comment by Caed rigdon, 4/19/2013:

you're an idiot


Response to this comment by FDR, 5/3/2013:

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