“In 1934, the government price of gold was increased to $35 per ounce, effectively increasing the gold on the Federal Reserve’s balance sheets by 69 percent. This increase in assets allowed the Federal Reserve to further inflate the money supply.” (“FDR takes United States off gold standard,” History.com, November 24, 2009.)
As I pointed out several installments ago, the recovery that followed FDR’s assumption of office was fueled almost exclusively by growth in the Federal Reserve’s gold holdings. As the following FRED chart shows, those holdings almost tripled during the four years following the nationwide bank holiday, allowing the M2 money stock to concurrently grow to 150 percent of its pre-holiday level. The result was a “Great Expansion” of real GNP that more than offset the “Great Contraction” of the preceding three years.
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