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WPCNR PLUS CA CHANGE, PLUS CA MEME CHANGE. News and  comment by John F. Bailey. November 3, 2025:

Marcel Proust said it all: “The more things change the more they remain the same.”

The Fed cost interest rates on October 29, The rush is on.

I find ironic that the lords of money today would lower interest rates on the same day the Great Stock Market Crash happened 96 years ago.

After worrying about how if they cut interest rates, inflation would overheat, the Federal Reserve Bank did the administration bidding which had been pressuring the Fed to cut interest rates and infuse the economy with spending adrenalin.

In the John Kenneth Galbraith book The Great Crash, which I printed the Wikipedia synopsis last week, I find it incredulous that with inflation rampant this year, that the Fed would do exactly what happened in the Roaring Twenties.  I quote Wikipedia again below:

(You cannot read the following without wondering how smart are those people in Washington who think throwing gasoline (money at lower interest rates) on a hot market will put out the fire inflation they have been trying to put out (inflation) the last year, but couldn’t.

 

The Florida land boom of the 1920s established the mood “and the conviction that God intended the American middle classes to be rich,” a sentiment so strong that it survived the ensuing crash of property prices.^[6] 

In the early 1920s, yields of common stocks were favorable and prices low.

In the final six months of 1924, prices began to rise and continued through 1925, from 106 in May 1924 stock prices rose to 181 by December 1925.^[7]

After a couple of short downturns during 1926, prices began to increase in earnest throughout 1927, the year in which conventional wisdom saw the seeds of what became the Great Crash sown. Following Britain’s return to the Gold Standard, and subsequent foreign exchange crises, there followed an exodus of gold from Europe to the United States.

EASING INTEREST RATES A COSTLY ERROR

In the spring of 1927, Montagu Norman and other governors of European Banks asked the Federal Reserve to ease their monetary policy and they agreed, reducing the rediscount rate from 4 to 3.5%, a move that Lionel Robbins described as resulting “in one of the most costly errors committed by it or any other banking system in the last 75 years”.

The funds released by the Fed became available to invest in the stock market and “from that date, according to all the evidence, the situation got completely out of control”.^[8]

Galbraith disagreed with this simplistic analysis by arguing that the availability of money in the past was no sure recipe for a bubble in common stocks and that prices could still be regarded as a true valuation of the stock at the end of 1927.

It is early in 1928 that the “escape into make believe” started in earnest, when the market began to rise by large vaulting leaps rather than steady increments.

Prominent investors, such as Harrison Williams, the proponent of both the Shenandoah and the Blue Ridge Trust, were described by Professor Dice as “having vision for the future and boundless hope and optimism” and not “hampered by the heavy armor of tradition”.^[9]

On 12 March, the volume of trading had reached 3,875,910 shares, an all-time high. By 20 June, 5,052,790 shares were traded in a falling market that many prematurely thought signalled the end of the bull market.^[10] Prices rose once more and after the election of Hoover, with a “victory boom” resulting in an all-time record trading of 6,641,250 shares in a rising market (16 November).

Overall, the market rose during the year from 245 to 331 which was accompanied by a phenomenal increase in trading on margin,^[11] which relieved the buyer from putting up the full purchase price of the stock by using the securities as collateral for a loan.

The buyer obtained full benefit of ownership in rising stock valuation, but the loan amount remained the same. People swarmed to buy stock on margin.

In the early 1920s, brokers’ loans used to finance purchases on margin averaged 1–1.5 billion but by November 1928 had reached six billion.

By the end of 1928, the interest on such loans was yielding 12% to lenders which led to a flood of gold converging on Wall St. from all over the world to fuel the purchase of stocks on margin.^[12]

In the wake of Black Tuesday,  October 29, London newspapers reported that ruined speculators were throwing themselves from windows but Galbraith asserts there was no substance to these claims of widespread suicides.^[13] Embezzlement now came to the fore.

During the bubble, there was a net increase of what Galbraith calls “psychic wealth”; the person being robbed was unaware of their loss whilst the embezzler was materially improved. With the bursting of the bubble, accounts were now more closely scrutinized and reports of defaulting employees became a daily occurrence after the first week of the crash.

Contrary to what had been Wall Street’s perceived tendency in playing down its influence, Galbraith asserted the important contribution of the 1929 crash on the Great Depression which followed:^[15] causing a contraction of demand for goods, destroying for a time the normal means of investment and lending, arresting economic growth and causing financial hardship which alienated many from the economic system. ^[2] Galbraith further argues that the Great Depression was caused by a mixture of five main weaknesses:

First, an imbalance in the income distribution. Galbraith asserts that “the 5 per cent of the population with the highest incomes in that year [1929] received approximately one third of all personal income.” Personal income in the form of rents, dividends, and interest of the well-to-do was approximately twice as much as in the period following the Second World War, leaving the economy dependent on a high level of investment and luxury consumer spending, and vulnerable to the stock market crash.^[16]

Second, problems in the structure of corporations. Most specifically, he cites newly formed investment entities of the era (such as holding companies and investment trusts) as contributing to a deflationary spiral, due in no small part to their high reliance on leverage.

Dividends paid the interest on the bonds in the holding companies, and when these were interrupted, the structure collapsed. “It would be hard to imagine a corporate system better designed to continue and accentuate a deflationary cycle.”

Also, “The fact was that American enterprise in the twenties had opened its hospitable arms to an exceptional number of promoters, grafters, swindlers, impostors, and frauds. This, in the long history of such activities, was a kind of flood tide of corporate larceny.”^[16]

(Does this sound a lot like today, readers?)

Third, the bad banking structure. The weakness was manifest in the large number of units working independently. As one failed, pressure was applied to another, leading to a domino effect accelerated by increasing unemployment and lower incomes.^[17]

Fourth, foreign trade imbalances. During World War I, the US became a creditor nation, exporting more than it imported. High tariffs on imports contributed to this imbalance. Subsequent defaults by foreign governments led to a decline in exports, which was especially hard on farmers.

And finally, “the poor state of economic intelligence.” Galbraith says that the “economists and those who offered economic counsel in the late twenties and early thirties were almost uniquely perverse” and that “the burden of reputable economic advice was invariably on the side of measures that would make things worse.”^[18]

Galbraith was of the opinion that the Great Crash had burned itself so deeply into the national consciousness that America had been spared another bubble up to the present time (1954).;^[19] however he thought the chances of another speculative orgy which characterized the 1929 crash as rather good as he felt the American people remained susceptible to the conviction that unlimited rewards were to be had and that they individually were meant to share in it. He considered the sense of responsibility in the financial community for the wider community as a whole as not being small but “nearly nil”.^[20] Even though government powers were available to prevent a recurrence of a bubble their use was not attractive or politically expedient since an election is in the offing even on the day after an election.^[21]

Now, departing from the Wikipedia synopsis of the Galbraith The Great Crash, technically the corporations have recovered by raising prices, firing staff and increased their profits and stock prices. But with less income and the catastrophic cold hearts of congress going along with budget cuts people cannot afford to buy houses, move forward with their lives, get jobs. Banks have not lowered their mortgage rates substantially to inject movement in real estate. Incomes of States, counties and cities have been cut by national spending cuts.

Meanwhile the market keeps on soaring, the stock market that is.

So cutting interest rates on the very day of October 29, seems to be the height of folly.

It took enormous efforts of charity of government under Franklin Delano Roosevelt’s New Deal to help Americans out of the Depression which was not really ended until World War II came along.

Now there is no  help, no pity, no sense of responsibility in the cold hearts of Congress and our leadership.

There is no help.

Help what’s that?

The irony of the rate cut on October 29 makes me shake my head in shame.

You too can be an economist, a leader, a Congressperson or a Senator.

You and I Mr. Mrs. and Ms. America have to pull ourselves up by our own bootstraps.

There is no Teddy Roosevelt or Franklin Roosevelt, or Barack Obama now to save us.

We do not learn from the past