One Summer: America, 1927

behind a ninety-ton steel door in a five-storey vault deep beneath the Federal Reserve Bank of New York in lower Manhattan. This was not actually a terrifically good thing. It might seem like a great idea to have all the gold, but in fact that would mean that other countries couldn’t buy any more of your products because they would have no gold of their own to pay for them. In the interests of trade and a healthy global economy, gold should circulate. Instead, it was accumulating – steadily, relentlessly, in a country that was already better off than all the countries of Europe put together.
    Prudence, not to mention simple decency, dictated that America should help its European friends. It was in America’s interest to keep international trade rolling along. So Strong decreed that the Federal Reserve would cut its discount rate from 4 per cent to 3.5 per cent, to encourage holders of gold to move their savings to Europe where they would enjoy higher returns. That in turn would bolster European reserves, help stabilize European currencies and boost trade overall. Strong gambled that the American economy could absorb the stimulus of a small rate cut without going crazy. It would prove to be a spectacular miscalculation.
    The four bankers concluded their meeting on 7 July and immediately travelled to Washington to inform selected members of the Federal Reserve Board of their decision. It was breathtakinglyaudacious of Strong to presume to instruct the Federal Reserve on how to conduct itself, and four of the reserve banks – in Chicago, San Francisco, Minneapolis and Philadelphia – refused to go along, partly in petulance no doubt, but also in the legitimate belief that it was madness to encourage more borrowing with market values so high already. But the Federal Reserve Board, in an unprecedented action, overruled the disobedient banks and instructed them to fall into line.
    The cut in interest rates had an explosive effect – ‘the spark that lit the forest fire’, in the words of the writer and economist Liaquat Ahamed. The result was the Great Market Bubble of 1928. Over the next year, stocks would more than double from already irrational heights, and the volume of brokers’ loans to investors would rise by more than $1 billion to a tottering and unsound $4.5 billion – all fuelled by the patently deluded belief that stocks could keep on rising for ever.
    For the moment, however, few outside the banking system saw any cause for worry. Among politicians, only Herbert Hoover was immediately exercised – and he was furious. He called Strong ‘a mental annex to Europe’ (and would later accuse him of ‘crimes worse than murder’) and wrote to the Federal Reserve Board predicting that the rash cut in interest rates could well precipitate a depression. Separately, he urged Coolidge to do something to reverse the action. Coolidge declined in the belief that the market was doing fine – his trusted treasury secretary, Andrew Mellon, had recently assured the world: ‘The stock market seems to be going on in very orderly fashion, and I see no evidence of over-speculation’ – and anyway, the Federal Reserve was an independent body whose judgements were not his to overrule. And so, as usual, he did nothing, and instead returned to the happy business of catching trout. The Great Depression would be for someone else to deal with.
     
    fn1 In fact, the mantra as Coué gave it in his book was ‘Every day in every respect I am getting better and better.’ It was Coué’s clients in America who autosuggested their way to the snappier version.

C HAPTER 16
     

     
    AT LAST THE Nation was warming up and drying out. In New York, the temperature rose towards 80 degrees as the long Fourth of July weekend began. The first heatwave of summer was under way.
    Heat transformed city life. It created an air of shared misery, and sparked conversations between strangers. For once everyone had something to talk about. Life became communal in ways that the world has mostly forgotten. People sat on stoops. Barbers brought chairs outside and shaved their customers beneath a shady tree or awning. Windows everywhere were lifted wide – in offices, apartments, hotels, libraries, hospitals, schools – so all the noises of the city drifted through wherever you were. The ocean roar of distant traffic, the cries of children at play, an argument in the next building – all these and a million other sounds played over you as you