chapter  13
12 Pages

Financial Instability and Narrow Banking: Simons Revisited

The period of unprecedented growth and prosperity in the V.S. economy in the post-World War 11 period, and the lack of banking panics or crises on a level experienced previously in U.S. history, contributed to the popular belief that financial system problems were a relic of bygone days. There was a widespread belief that we had in fact entered a new golden age of prosperity so that, by the end of 1965, Time magazine could declare:

There were hints of looming problems, both domestic and international, and the "credit crunch" of 1966 would later be recognized as a crucial turning point in the economy. There were those who realized that the underlying institutional structure was neither unchanging nor necessarily stable, and that problems with the financial system were on the horizon.