Principles of Liquidity | The Twilight of Gold Series | Episode 8 (WiM166)
The "What is Money?" Show
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Liquid Banking in the Depressions and Booms
The classical theory of money market control by discount rate changes and by open market operations was based on the assumption of a liquid banking structure. The actual failure, or unsatisfactory working of discount and open market policy in major booms and depressions reflects the fact that the banking system has been illiquid in each case. Interference then leads to breakdown, which it was supposed to avoid. Liquid banking achieves stabilization by inhibiting the major boom and eliminating its consequence, the depression.
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