The Federal Reserve System and Stock Speculation

June 8, 1929

Report Outline
The Bull Market of 1924–29
Federal Reserve Policies During Five-Year Bull Market
Current Federal Reserve Policy and the Credit Situation
Special Focus

In the four months that have elapsed since the Federal Reserve Board issued its warning of February 6, 1929, that an excessive amount of the country's credit was being absorbed in speculative security loans, there has been a net reduction of $348,000,000, or 6.8 per cent, in loans to brokers reported by New York City member banks of the Federal reserve system. During this four-month period there were two sharp reactions in stock prices on the New York Exchange, the first in the latter part of March and the second in the latter part of May, both of which were attributed to the Federal Reserve Board's credit policy. The closing prices on June 6, 1929, of fifty representative stocks averaged $244.47 a share. The average closing price of these shares on February 5, the day before the Federal Reserve Board's credit warning was issued, was $247,44 a share. In its statement of February 6, the Board said:

The Federal Reserve Board neither assumes the right nor has it any disposition to set itself up as an arbiter of security speculation or values. It is, however, its business to see to it that the Federal reserve banks function as effectively as conditions will permit. When it finds that conditions are arising which obstruct Federal reserve banks in the effective discharge of their function of so managing the credit facilities of the Federal reserve system as to accommodate commerce and business, it is its duty to inquire into them and to take such measures as may be deemed suitable and effective in the circumstances, to correct them; which, in the immediate situation, means to restrain the use, either directly or indirectly, of Federal reserve credit facilities in aid of the growth of speculative credit.

The trend of brokers' loans since the Federal Reserve Board's warning was issued is shown in the following table.

ISSUE TRACKER for Related Reports
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Apr. 04, 1973  Future of Social Programs
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Apr. 12, 1941  Public Works in the Post-Emergency Period
Mar. 08, 1940  Integration of Utility Systems
Feb. 26, 1938  The Permanent Problem of Relief
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Nov. 27, 1936  New Deal Aims and the Constitution
Oct. 16, 1936  Father Coughlin vs. the Federal Reserve System
Sep. 25, 1936  Roosevelt Policies in Practice
Feb. 11, 1936  Conditional Grants to the States
Dec. 11, 1935  Capital Goods Industries and Recovery
Sep. 25, 1935  Unemployment Relief Under Roosevelt
Jul. 17, 1935  The R.F.C. Under Hoover and Roosevelt
Jul. 03, 1935  Six Months of the Second New Deal Congress
Jun. 04, 1935  The Supreme Court and the New Deal
Mar. 05, 1935  Public Works and Work Relief
Feb. 16, 1935  Organized Labor and the New Deal
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Oct. 26, 1934  Federal Relief Programs and Policies
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Jul. 17, 1934  Debt, Credit, and Recovery
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Mar. 27, 1934  Construction and Economic Recovery
Mar. 19, 1934  Price Controls Under N.R.A.
Feb. 15, 1934  Federal Promotion of State Unemployment Insurance
Jan. 10, 1934  Government and Business After the Depression
Jan. 02, 1934  The Adjustment of Municipal Debts
Dec. 12, 1933  The Machine and the Recovery Program
Dec. 05, 1933  Winter Relief, 1933–1934
Nov. 11, 1933  Power Policies of the Roosevelt Administration
Oct. 28, 1933  Buying Power under the Recovery Program
Oct. 19, 1933  Land Settlement for the Unemployed
Sep. 20, 1933  The Capital Market and the Securities Act
Jul. 18, 1933  Public Works and National Recovery
Jul. 01, 1933  The Plan for National Industrial Control
May 03, 1933  Economic Readjustments Essential to Prosperity
Apr. 26, 1933  Government Subsidies to Private Industry
Mar. 25, 1933  Rehabilitation of the Unemployed
Feb. 17, 1933  Federal Cooperation in Unemployment Relief
Nov. 16, 1932  Systems of Unemployment Compensation
Nov. 09, 1932  Policies of the New Administration
Aug. 18, 1932  Emergency Relief Construction and Self-Liquidating Projects
Dec. 28, 1931  Relief of Unemployment
Aug. 01, 1931  National Economic Planning
Jul. 20, 1931  Dividends and Wages in Periods of Depression
Feb. 19, 1931  Insurance Against Unemployment
Jan. 19, 1931  Business Failures and Bankruptcy Administration
Jan. 01, 1931  Federal Subsidies to the States
Dec. 08, 1930  Federal Relief of Economic Distress
Sep. 25, 1930  The Extent of Unemployment
May 16, 1930  Politics and Depressions
Dec. 20, 1929  The Federal Public Works Program
Jun. 08, 1929  The Federal Reserve System and Stock Speculation
Apr. 14, 1928  The Federal Reserve System and Price Stabilization
Feb. 25, 1928  The Federal Reserve System and Brokers' Loans
Financial Institutions
Investment and the Stock Market