In this speech, given in Brussels to the Ludwig von Mises Institute Europe on 18 November, Alasdair Macleod, Goldmoney's Head of Research, explains how the expansion of bank credit evolved following the 1844 Bank Charter Act in English law. Alasdair explains why bank credit expansion always leads to a crisis, and why the cycle of boom and bust has been repeated ever since.
Special emphasis is given to the combination of bank credit expansion between 1922-29, when the Smoot Hawley Tariff Act was then passed by Congress on 30 October 1929. That month saw the Wall Street Crash, and by mid-1932 Wall Street had fallen by 89%. Today, there are striking similarities with that period. We have had a greater level of bank credit expansion since the Lehman Crisis, and a tariff war has erupted between the world's two largest economies. Alasdair goes on to suggest the recent Repo failure in New York may turn out to be an important signal of impending systemic failure, echoing the events in October 1929, when capital markets suddenly realized the party was over and greed turned rapidly to fear.
Alasdair Macleod is head of research for GoldMoney. He also runs FinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. He has a background as a stockbroker, banker and economist.