

How the current crisis compares to the Panic of 1873 - rglovejoy
http://chronicle.com/temp/reprint.php?id=477k3d8mh2wmtpc4b6h07p4hy9z83x18

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peakok
Interesting, but there are 2 critical differences :

1/ there was no Federal Reserve in 1873. The 1873 depression was one of the
crisis that motivated the creation of the Fed, we thought a centralized bank
system would help to stabilize the system.

2/ We are under the Bretton Woods system since 1944. It's the 1929 Great
Depression that motivated the agreements of Bretton Woods.

What makes this crisis unique of its kind is that the US autorities are going
to unleash 700 friggin billions dollars in the engine. It is a first time in
history that such ridiculous numbers are summoned. This challenges at least
one assumption of this article :

 _The post-panic winners, even after the bailout, might be those firms —
financial and otherwise — that have substantial cash reserves._

In 1873, money was tied to gold. Therefore if you had cash reserves, it meant
you could exchange it against sound, physical gold. It was guaranteed. It's
not true anymore.

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helveticaman
>It is a first time in history that such ridiculous numbers are summoned.

Not true. In 1984, in Chile, there was a shitstorm that warranted a 14 billion
dollar bailout. Chile's population was ~12M, so the bailout was just over a
thousand dollars per capita. Now, the bailout in US is over two thousand
dollars per capita (700B/300M), and between 1984 and today, the dollar has
lost about half its purchasing power (or more, depending on who you ask). So,
it's about the same size. Keep in mind Chileans were, and still are, much
poorer than Americans are today. So yes, there have been bailouts this size.

On a side note, the Chilean bailout was a success. But then, the Chilean
Ministerio de Hacienda (Fed, basically) was really big on Friedman and the
Chicago School in general. Plus, historically, it has always kept its shit
together. Don't know if this is the case with the Federal Reserve.

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peakok
This is not comparable because the 14 billions DOLLARS were prolly backed by
the FMI wich meant that the United States and Europe were behind the bailout.
Even if only the U.S were behind, 14 billions was really not much as we can
see today.

But today the United States ARE the heart of the system. It's all a matter of
confidence now : will the world trust the U.S banking system enough, will the
world trust the dollar enough, in the end : will the world trust the U.S
autorities ? The trust must comes directly from the U.S now, because there is
no international agency backing up your decisions.

ALL the stability in the system comes from this confidence. The U.S. dollar
was the most trusted money in the world.

~~~
Retric
Which brings up an interesting point. I think the number of dollars used
outside the US complicates the issue. Because of fractional reserve banking we
can't control how fast the rest of the world inflates or deflates the dollar.
Also we export 15% of our GDP and import considerably more than that so I
think the rate that the rest of the world tanks is going to be vary important
to our economy.

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socmoth
"Most important, when banks fall on Wall Street, they stop all the traffic on
Main Street — for a very long time."

best part for me, and how people aren't really getting why you would bail out
banks.

