By Garet Garrett
2009 reprint of 1932 variation. Garet Garrett used to be born in 1878 in Illinois. by means of 1903, he had develop into a well-known author for the outdated ny solar. In 1916, on the age of 38, Garrett turned the administrative editor of the hot York Tribune, after having labored as a monetary author for the recent York occasions, The Saturday night submit, and The Wall highway magazine. From 1920 to 1933, his fundamental concentration used to be on writing books. among 1920 and 1932 Garrett wrote 8 books, together with A Bubble That Broke the realm in 1932. He additionally wrote standard columns for a number of company and monetary courses. Garett's political point of view total, and the primary subject matter all through all his books, is libertarian or classical liberal. All his works exemplify the fundamental premise guy is liable for his personal lifestyles, and that no guy can count on a unfastened journey off others, via compelled source of revenue distribution schemes equivalent to socialism and communism. because the twentieth century improved, he believed that american citizens have been signing away their birthright of freedom, via buying and selling of their obligations of self-governance and self-responsibility, in go back for extra socialist measures equivalent to FDR's New Deal enlargement of presidency.
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It is what is bound to happen when we lend American credit to foreign countries to increase their production of competitive goods; and the problem then is how we shall receive payment at all, if we keep a tariff against the exportable goods of our debtors. But even that idea of buying foreign trade with American credit, to make outlets for the American surplus, was not consistently pursued. Take some typical instances. With the American Government borrowing credit to lend at low rates of interest to people who will build ships, thereby to foster an American merchant marine, American credit is loaned in large sums to German shipping companies; they use it to build German ships in German shipyards, with German labor and German materials, to compete with American ships.
Each day the lines of anxious depositors grow longer. Thus the waters of credit continue to contract, and the rate is accelerated. But suppose the New York bank has loaned the credit to a bank in Berlin and cannot get it back at all. What will it do in that case? For it is obliged either to return the credit to the small local bank that is demanding it back or confess itself insolvent. Well, in that case the New York bank must sell some securities out of its own reserve investments. But if all the New York banks are 52 A BUBBLE THAT BROKE THE WORLD doing the same thing at the same time, as more or less they will be, the effect on the Stock Exchange is even worse.
Thus the bank accumulates deposits—that is to say, money. What does it do with the money? A bank pays interest; therefore, a bank must earn interest. It must earn more interest than it pays out, else it cannot make a profit for itself. So the bank must lend its deposits. To receive money on which it pays interest and to lend money on which it receives interest—that is a bank's whole business. Now, what proportion of its total deposits do you suppose a bank lends? How much would you think it was safe to lend?