America's Money Machine

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The Not So Golden Years 239 payable in various foreign currencies (Swiss francs, German marks, Austrian schillings, Belgian francs, Italian lire). No bonds, however, were issued payable in French francs-a circumstance we shall comment on further on. In addition, the Federal Reserve, through a devious device known as "swap arrangements," entered into arrangements with various foreign central banks to obtain foreign currencies in order to strengthen the dollar abroad. In short, the Federal Reserve System ended its fifth decade with a paradox of the so-called gold exchange standard. Its dollar obligations represented prime reserves of foreign central banks whose currencies, supported by these dollar obligations, were in turn the support for the dollar obligations. Ifthis seems a bit confusing, one can think of the little island where supposedly everyone lived by taking in each other's wash.
T OWARD 32. The End of a Dream THE END OF 1963 the New York Times reported that "a quiet revolution has been taking place in the Federal Reserve Systern." 1 Within the preceding two and a half years, the Times announced, "the nation's money managers have reshaped their tactics and reforged their weapons for carrying out their responsibilities." The nature of this "revolution," it appeared, went beyond routine questions ofthe techniques to be employed in easing or tightening credit. It "involved a basic shift in the concept of monetary management." "The Federal Reserve," the Times stated hopefully, "is now following a dynamic course, pursuing an aggressive policy of managing money." This represented an about face from the "passive course followed in the nineteen fifties" when the Federal Reserve "all but abdicated its responsibility for monetary management." This passive role, it was explained, consisted of "self-imposed restrictions on open-market operations," of reliance upon the discount function, and ofdisuse ofmember bank reserve requirements. These had now been abandoned in favor of a willingness to experiment with new techniques in response to changing conditions. "Now, for the first time," said the Times, "flexible monetary policy is in operation." In detailing the specifics of the new dynamism, however, the Times account grew understandably vague. It reported that the Reserve had relaxed its "rigid technique for conducting open market operations, and could claim some measure of success for expanding the supply of credit and at the same time holding up short-term interest rates to defend the dollar." It raised the discount rate-"the first time that it had been used
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BOOKS BY ELGIN GROSECLOSE Money: Th
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For My Beloved Louise with especial
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Vlll CONTENTS 22. The New Thermopyl
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x PREFACE sprawled under the weight
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Preface XIU cash, lawful money, leg
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Preface xv tary expansion and a che
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4 PART I / THE ROOTS OF REFORM An i
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T HE 2. The First Shock Wave SIGNIF
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T HE 3. The Lapping at the Dikes YE
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The Lapping at the Dikes 19 On Mond
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4. The Rich Man's Panic T HE STOCK
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The Rich Man s Panic 25 bocker Trus
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PART I / THE ROOTS OF REFORM The cr
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A FTER 7. An Interlude for Debate T
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PART I / THE ,ROOTS OF REFORM The P
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PART I / THE ROOTS OF REFORM of New
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PART II The Great Reversal
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84 PART II / THE GREAT REVERSAL Wha
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I T 12. The First Inundation WAS A
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The First Inundation 89 $43 million
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The First Inundation 91 and at a ti
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13. Collapse of a Theory THE SPLEND
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Collapse ofa Theory 95 should be re
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Collapse of a Theory 97 such paper
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Collapse ofa Theory 99 plete contro
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The Path of Retreat 101 Under Warbu
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The Path of Retreat 103 Along with
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15. When to Reef Sail DURING THE FI
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Rediscount rate Date New York Feder
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When to Reef Sail 1 17 You have the
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PART II / THE GREAT REVERSAL 15 per
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1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
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158 PART III/DEBACLE OF AN IDEA tio
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The Crumbling of the Dikes 161 day
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T HE 22. The New Thermopylae EFFORT
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23. The Keynesian Influence JOHN MA
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T HE 24. The Not So New New Deal AF
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PART III / DEBACLE OF AN IDEA ties
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Page 224 and 225: Where Two Tides Meet 207 billion. I
Page 226 and 227: Where Two Tides Meet 209 The conser
Page 228 and 229: Where Two Tides Meet 211 creating a
Page 230 and 231: The Reversals of War 2 13 the world
Page 232 and 233: The Reversals of War 2 15 per cent
Page 234 and 235: The Reversals of War 217 three-mont
Page 236 and 237: 29. Doubtful Victory No HEAD of the
Page 238 and 239: Doubtful Victory 221 sury and the F
Page 240 and 241: Doubtful Victory 223 at a cost of 1
Page 242 and 243: Doubtful Victory 225 sleeping on hi
Page 244 and 245: 3 o. The Role of Atlas THE FIFTH DE
Page 246 and 247: The Role ofAlIas 229 dollar deposit
Page 249 and 250: 232 PART III/DEBACLE OF AN IDEA amo
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Page 268 and 269: The Chute fluctuating in value agai
Page 270 and 271: Into the Pit 253 As the relative ma
Page 272: Into the Pit 255 That bankruptcy wa
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Page 278 and 279: Out of the Pit 261 A fourth misconc
Page 280 and 281: Out of the Pit 263 WarII the ratio
Page 282: Out of the Pit 265 The Federal Rese
Page 285 and 286: 268 NOTES Chapter 4. 1. New York Ti
Page 288: Notes Chapter 19. 1. Federal Reserv
Page 291 and 292: 274 NOTES Chapter 31. 1. See the au
Page 293 and 294: SELECTED BIBLIOGRAPHY Harding, Will
Page 296 and 297: About the Author ELGIN GROSECLOSE f
Page 298: Achesont Deant 19 1-g2 t 196 t 198
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