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THE PSYCHOLOGY OF MONEY - Commented Book

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The Great Depression

In 1946, the Council of Economic Advisors delivered a report to President Truman warning of a full-scale depression sometime in the next one to four years. In 1942, the Fed announced it would keep short-term rates at 0.38%. Rates didn't budge a single basis point for the next seven years. Three-month treasury yields stayed below 2% until the mid-1950s. The explicit reason for keeping rates down was to keep the cost of financing the equivalent of the $6 trillion we spent on the war low. Low rates also did something else for all the returning GIs: It made borrowing to buy homes, cars, gadgets and toys really cheap.

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