Reading notes : Lords of Finance (part 1)

The book "Lords of Finance --- 1929, the greatest depression and the bankers who broke the world " carried extensive study on the cause, events and people before , around and after the famous Great Depression that haunted the world during early 1930s.

Written by Liaquat Ahamed, the book introduce the cause of credit crunch due to the rigid gold standard, although not similar but familiar with today's credit crunch that swept the world in 2008.

Caution 1, these posts are intended to be my reading notes provided brief overview of the book. Those who are interest in the more details please look for the original version of the book.

Caution 2, due to laziness of me, i will not reference most part of my particle. Please informed me any intellectual property or copyright infringement and i sincerly apologize for all damage cause.

Background information
The four man in the middle of crisis.

Montagu Collet Norman ----- governor of bank of England
Benjamin strong ---- new york federal reserve bank
Hjalmar Schacht ---- Reich bank
Emile moreau --- banque de france

The key to world economy is global financial system, where before the crisis, the government lay the job to the bankers.

At time, all major currency were on the gold standard, which tied a in value to a very specific quantity of gold

Pound sterling ---- 113 grains of pure gold,
Dollars ---- 23.22 grains

paper money was legally obligated to be freely convertible into its gold equivalent, and each of the major central banks stood ready to exchange gold bullion for any amount of own curreny.

Most of the monetary gold in the world, almost two-thirds, did not circulate but lay buried deep underground, stacked up in the form of ingots in the vaults of bank, most of them in central bank. Which determine the reserves for the banking system, determine the supply of money and credit within the economy.

In order to ensure the privilege of printing money not abused, each one of the central banker was required by law to maintain a certain amount of gold bullion as backing for its paper money.

Thus, when gold accumulate in vaults, interest rate lower to reduce cost of credit, which pump more money to the system.
When gold are rare, interest rate raise to increase cost of credit, the amount of currency in circulation contracted.

Cons, monetary policy adjusted to maintain gold standard, despite possible disruption to real time economy,
Pros, inflation remain low.

Role of central bank, lender of last resort which suppose to restore confident towards the banking system . Especially during banks runs and banking crisis, such as the one in 1907, America.