You need to add two elements to the story to be able to explain the role of the Fed in contributing to the length and duration of the fall of the economy from 1929-1933. First, focusing on the money stock (however defined) is not as useful as focusing on the fall in prices. Prices fell by one-third in four years. THAT'S A LOT. Whether or not the Fed could have done anything to reverse that process, the fact is that everything they did would have contributed to that process, and they didn't care. Second, bank failures were intensely regional. Disasters in some places, no big deal in others. The structural disruption was thus very uneven, but the overall impact of having some areas fall apart completely while others were stable turned out to be disruptive to the whole nation. There have been some good studies comparing the Canadian system, which was more stable through all this, to the American system and its idiotic unitary banking laws. The troubled regions were isolated, and that really hurt them. (Check out You Can't Go Home Again by Thomas Wolfe for a great description of a North Carolina banking panic.) If you put it together, with dramatically falling prices and serious structural disruption in a very short period of time, you get a better picture of what was going on. And with prices falling so rapidly, deflationary expectations would have rendered the real interest rate higher than the nominal rate. Hence the lack of interest in borrowing and investing. First-person accounts, BTW, really stress the disruption in individual's lives of having a nearby S & L fail. And I am personally fascinated by the stories of scrip being used by local governments and the utility companies in Phiadelphia and New Jersey, and other areas. -- Mary Schweitzer