Parallel Form

We are matching spark and flame
Caught in endless repetition
Life for life we'll be the same
I must leave before you burn me
--The Fixx

Interesting paragraph from Phillips et al (1937) on the consequences of the Fed-induced credit expansion from 1922-1929:

"The immediate effects of this investment credit inflation were marked by important and interrelated changes in the character of bank loans and investment assets. There developed an indirectness in the processes of bank credit financing, bank credit entering into the channels of production and trade through the operations in the securities and capital markets rather than in direct loans to business men to finance short term transactions. The liquidity of banks declined in general to such an extent that they were ill-prepared to cope with the situation that arose when the stock market crashed placed an unduly severe pressure on the banking structure. As a result of the plethora of bank credit funds and the utilization by banks of their excess reserves to swell their investment accounts, the long-term interest rate declined and it became increasingly profitable and popular to float new stock and bond issues. This favorable situation in the capital funds market was translated into a constuctional boom of previously unheard-of dimensions; a real estate boom developed, first in Florida, but soon was transferred to the urban real estate market on a nation-wide scale; and, finally, the stock market became the recipient of the excessive credit expansion. These three booms--the constructional boom proper, the real estate booms, and the stock market hysteria--combined to produce structual changes in the economic system which were directly involved with the immediate origins of the depression. This trinity of booms contributed to sustain a seeming prosperity, the tragic speciousness of which was not widely apparent until after the bubble had burst. Hence the remote effect of the investment credit inflation was the depression, to be followed by the unprecedented bank failures terminating in the Banking Panic of 1933." (81-82)

Cut and paste that into 2009, and you've pretty much summed up what's occured over the past few yrs. Can't help but wonder whether a parallel banking panic still lurks in our future.