The report tells of a “decided improvement in business and banking conditions” in the Western United States. It goes on to state: “During the period from mid-March to late summer, rehabilitation of the banking structure proceeded rapidly and business improved substantially. Production and distribution fluctuated considerably during the last four months of the year, but in November and December were only moderately below the highest levels reached in the summer months. The position of banks was further strengthened during these months…”
If that sounds like the search for “green shoots” since the Great Recession, it was actually from the year-end 1933 report of the Federal Reserve Bank of San Francisco. As we know, the Great Depression was only starting. It would require extraordinary measures of the New Deal to bring down unemployment of 25 percent, and not finally be overcome until World War II restarted demand.
Yet the narrative sounds like the most recent Beige Book, which included, “Economic activity continued to expand modestly. Demand for retail items rose slightly, and upward price pressures appeared to ease overall.”
The 1933 report discusses a rebound in industrial activity and agricultural prices. FDR’s Emergency Banking Act had passed in March, and insolvent banks were closed while those in better health were being helped by the new federal deposit insurance. But in fact it took years for banking (and real estate) to return to health. What was really happening: A vast hole in demand, aggravated by the Federal Reserve’s tightening of credit in a deflationary period.
Fed Chairman Ben Bernanke promised the late Milton Friedman, who along with Anna Schwartz laid bare monetary policy’s role in making the Depression worse, that the central bank wouldn’t repeat that mistake. It didn’t. Whether its using all the tools it could to ease today’s crisis is a topic of heated debate among economists. What’s clear is that Americans are by nature optimists, and will keep looking for recovery just around the corner, no matter how profound the economic earth has shifted under their feet.
You can download historic San Francisco Fed reports here.
Today’s Econ Haiku:
Amazon sets Fire
Will Apple get a hot foot?
Or is this all smoke?