Hindsight is 2020
Black Monday, October 19th, 1987 was 33 years ago today. It was one of the worst one-day stock declines in history.[1]
Ever since 1987, the Federal Reserve has met stock declines with what is known as the “Greenspan Put.” That is, the Federal Reserve will print money and lower interest rates to inflate stock prices.[2][3]
History repeats.
The Mississippi Bubble and the South Sea Bubble burst 300 years ago in 1720 when people realized that the government was printing money and lowering interest rates to inflate stock bubbles.[4][5]
Inflating the supply of money works until people wake up. Hindsight is 2020.
“But then finally the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.” -Ludwig von Mises, Human Action (1949), page 428.
What’s in your wallet?
“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.” -Former Federal Reserve Chairman Alan Greenspan, Meet the Press, August 7, 2011.
“We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power.” -Fed Chairman Alan Greenspan, US Senate Committee on Banking, Housing and Urban Affairs, Feb 16, 2005.
“Gold is a currency. It is still by all evidences the premier currency where no fiat currency, including the dollar, can match it.” - Alan Greenspan, in an interview for the Council on Foreign Relations, Nov 2014
Bonus: Black Thursday was October 24, 1929. It marks the start of the Great Depression (the one from the 20th century, for future readers).
[2]https://www.bloomberg.com/opinion/articles/2018-02-13/powell-s-fed-isn-t-about-to-end-the-greenspan-put “Shortly after the market crash of 1987, the Fed cut rates, changing course in the middle of a tightening cycle. That action has famously become known as the “Greenspan put” because of the implied promise that central bankers led by Fed Chairman Alan Greenspan would bail out market participants who indulged in risky behavior.”
[3] https://fred.stlouisfed.org/series/fedfunds “The effective federal funds rate is essentially determined by the market but is influenced by the Federal Reserve through open market operations to reach the federal funds rate target. […] Similarly, the Federal Reserve can increase liquidity by buying government bonds, decreasing the federal funds rate because banks have excess liquidity for trade.”
[4]https://www.hamiltonmobley.com/blog/phseyvr2uymtcom264fgfsyrqcydhk?rq=mississippi
