Page 211 - Psychology of Money - Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

In 1946 the Council of Economic Advisors delivered a report to President
Truman warning of “a full-scale depression some time in the next one to four
COBACOBA
years.”

They wrote in a separate 1947 memo, summarizing a meeting with Truman:

We might be in some sort of recession period where we should have to be
very sure of our ground as to whether recessionary forces might be in danger
of getting out of hand … There is a substantial prospect which should not be
overlooked that a further decline may increase the danger of a downward

spiral into depression conditions.

This fear was exacerbated by the fact that exports couldn’t be immediately
relied upon for growth, as two of the largest economies—Europe and Japan

—sat in ruins dealing with humanitarian crises. And America itself was
buried in more debt than ever before, limiting direct government stimulus.

So we did something about it.

2. Low interest rates and the intentional birth of the American
consumer.

The first thing we did to keep the economy afloat after the war was keep
interest rates low. This wasn’t an easy decision, because when soldiers came
home to a shortage of everything from clothes to cars it temporarily sent

inflation into double digits.

The Federal Reserve was not politically independent before 1951.⁷² The
president and the Fed could coordinate policy. In 1942 the Fed announced it
would keep short-term rates at 0.38% to help finance the war. Rates didn’t