A Note on the ‘Great Contraction’

2 Pages Posted: 24 Nov 2009

See all articles by Ali Kabiri

Ali Kabiri

University of Buckingham - Department of Economics and International Studies; Financial Markets Group - LSE


The modern literature on the US banking crisis in 1931 overlooks the key role played by ‘liquidity black holes’ and under-pricing in the corporate and government bond markets resulting from the banking system's fire sale of assets. This process weakened the bank lending channel in a continuous feedback loop which was eventually checked by ‘money creation’ by the Federal Reserve. This note investigates the work of Evans Clark (1933) who highlighted the process of fire sales and mispricing of assets due to non-fundamental causes.

Suggested Citation

Kabiri, Ali, A Note on the ‘Great Contraction’. Economic Affairs, Vol. 29, No. 4, pp. 87-88, December 2009, Available at SSRN: https://ssrn.com/abstract=1512885 or http://dx.doi.org/10.1111/j.1468-0270.2009.01955.x

Ali Kabiri (Contact Author)

University of Buckingham - Department of Economics and International Studies ( email )

United States

Financial Markets Group - LSE ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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