Thomas Tooke

There is no manipulation of the Gold price! At least not before September 7th 1917. Or before 1873? Patrotism used again as the excuse.

In Inflationary Period of 1913-1920, Uncategorized, Unreserved Banking on April 29, 2012 at 3:19 pm

In the middle of 1830s, Gold was free to leave the Bank of England, and the bullion free to be exported. When over-expansion of paper money would occur, the result would prompt the speculators to lean against the tide by changing their Gold early in the process for Bullion and ship it overseas. This would lead to a contraction and at some point it would become interesting to bring bullion again in the UK.  However on September 7th, 1917 the United States government decided to monopolize money further (after the Fed layered the banking system with war bonds –treasuries–),  and declared an embargo on Gold shipments.

As Kemmerer writes:

[…]

The heavy drain of gold which such a condition of affairs would normally have brought about was prevented by the gold embargo, which was in effect from September 7th, 1917, to June 10th, 1919, by the government´s giving wide publicity to the doctrine that hte use of gold coin or gold certificates in circulation was an unpatriotic act, that all gold should be impounded in the federal reserve banks where it would serve the country with maximum efficiency, and by the further fact that most of the leading countries of the world were inflating their currency and bank credit at even more rapid rates than we were.

The result was an expansion of bank loans and, in consequence, of deposit currency such as this country and probably no other country ever saw before in an equal space of time. In the following table the expansion of bank deposits is shown. The figures cover individual and government deposits in commercial banks and government deposits in federal reserve banks.

[…]

Here we have within a period of six years an increase in our national bank deposits of approximately 118 per cent, or over seven billion dollars, and an increase of state bank and trust company deposits of over 121 per cent, or over six billion dollars. The two together represent and increase of over 120 per cent of our deposits in commercial banks since 1913, or an increase of over 13 billion dollars. Probably 80 to 85 per cent of the country´s business is concluded through the instrumentality of bank checks. It is through checks that deposits circulate and that the bank´s depositor gives expression to his demand for goods. The war period has been one in which deposits have circulated at a more rapid rate than usual and the doubling of deposits has therefore probably resulted in an even greater increase in the country´s deposit currency circulation.

This tremendous increase in bank deposits has resulted in a great decline in the average percentage of actual cash reserves held against deposits — namely the ratio of deposits (as above computer) to actual cash held by national banks, state banks, trust companies, and federal reserve banks (exclusive of reserves held against federal reserve notes). This average percentage for the country as a whole has varied as follows since 1913:


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