Lords of Finance by Liaquat Ahamed (Part I of II)

This is a wonderful book for those who would like a new perspective on the people who made the decisions behind the period 1914-1934. The subtitle to the book is "the bankers who broke the world" and the premise of the book as written in the final pages:

"The Great Depression was the direct result of a series of misjudgments by economic policy makers..." who burdened the world with WWI debts that required payments; a return to the gold standard when the gold reserves were unfairly distributed with 60% in the hands of the U.S. and the U.K.; and low interest rates that all combined to create the stock market bubble of 1929.

Some highlights:

(1) The Treaty of Versailles (November 11, 1919) required Germany, France and Great Britian to pay for WWI, in part, to each other and, in part, to the U.S. resulting in huge government deficits hurting the world economy

(2) Deflation or inflation was the way out

(3) U.S. and England chose deflation (contracting money in circulation with tight credit, high interest rates and the resulting recession and high unemployment hurting the borrowers)

(4) France and Germany chose inflation (devaluing their currency and thereby cheating investors and creditors out of the true value of their savings with increased money supply)

(5) John Maynard Keynes during this period stated "...inflation is more than simply prices going up. It is a subtle mechanism for transferring wealth..." (from savers and wage earners to the government, business and debtors)

The Dawes Plan of 1924 tried to improve upon the Treaty of Versailles but unfortunately resulted in continued hyper-inflation in Germany. In the U.S., in Florida, from 1921- 1925 the prices of real estate sky-rocketed (sound familiar). The author comments:

"Watching other people become rich is not much fun, especially if they do it overnight and without any effort."

But, of-course, 1929-1933 was just around the corner. Unlike what happened in 2007-2009 though, the stock market increased 30% and then from June of 1928 to October 1929 (a 15 month period) the market almost doubled. It is important to remember that only about 10% of the population was actually investing in the market in those days.

The Federal Reserve increased interest rates from 5% to 6% in August of 2009 just before the crash. And famous people like Irving Fisher (well-known economist) said "...stocks have reached what looks like a permanently high plateau..."

The stock market lost 50% in 6 weeks (through Black Thursday, Black Monday and Black Tuesday) and then went on to lose more in the following year as the central bankers of the world no longer knew what to do and made many errors of judgment.