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  • ilap2004 ilap2004 Jun 10, 2009 2:46 PM Flag

    Excellent Q&A of the day

     

    The Federal Reserve was created in 1913.

    "World War I made gold unstable. The instability began when deficit spending pushed the European belligerents off the gold standard, and gold came to the United States, where the newly-created Federal Reserve System monetized it, doubling the dollar price level and halving the real value of gold. The instability continued when, after the war, the Federal Reserve engineered a dramatic deflation in the recession of 1920-21, bringing the dollar (and gold) price level 60 percent of the way back toward the prewar equilibrium, a level at which the Federal Reserve kept it until 1929."

    http://www.robertmundell.net/NobelLecture/nobel3.asp

    In other words, inflation was created by an increase in the money supply.

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