Save the Fed

By Capt. Fogg

Doomed to repeat history? Of course we are, but the fate I fear isn't the sort of doom that descends upon us from above unless you consider the cesspit of "Conservative" rhetoric to be a higher plane of thought. No, I'm not talking about the market bubble of the late 1920's that was brought about by slashing the top marginal tax rate or the deregulation of the markets that gave us the 1929 crash; I'm talking about where we were fourscore years ago in 1931 when the European banks began to fail and nobody was able or willing to do anything about it. Then as now, we had "Conservative" rhetoric attempting to blame the mess on the usual suspects, like lazy American workers and in Europe: the Jews. We had calls around the world for even more austerity, as if the world could save itself by saving money.

" Instead of easing monetary policy by cutting interest rates and buying bonds, the Fed tightened. The result was a catastrophic chain reaction of bank failures, which caused the money supply to contract by approximately a third, and economic output with it"

writes Niall Ferguson at the Daily Beast, lamenting the gross lack of knowledge of bankers, investors, fund managers, regulators, policymakers, and economists. Ferguson cites Milton Friedman and Anna Schwartz’s Monetary History of the United States, which argues that

"the stock-market panic of 1929 turned into a depression because of avoidable errors by the Fed. Instead of easing monetary policy by cutting interest rates and buying bonds, the Fed tightened. The result was a catastrophic chain reaction of bank failures, which caused the money supply to contract by approximately a third, and economic output with it."

The Gold Standard, the massive debt from The Great War, the partisan inability to compromise brought on the disaster we know as the Great Depression and only those countries that dropped that standard and began hiring while gearing up for war, began to recover. Germany led the way and the US followed.

With some Republican spokesmen demanding the return of the gold standard, demanding an end to the Fed, demanding more austerity, demanding that more capital be tied up in the hands of a tiny minority, the money supply diminished and the demand for goods and services curtailed, the few who understand what needs to be done are being shouted down by politicians who insist that the only solution is a bigger cut in the marginal rate, and the angry mob they feed.

"We are indeed fortunate that at least the world’s leading central bankers have studied this history: not only Ben Bernanke but also the heads of the Bank of England, the Bank of Canada, and the European Central Bank. The bad news is that so few politicians and voters understand what they are trying to do, or why. The even worse news is that central bankers by themselves may not be able to stop our depression from turning great."

Worse news even than that, is the fact that people like Dr. Ferguson, a professor of history at Harvard University, a senior research fellow at Oxford University, and a senior fellow at the Hoover Institution, Stanford University do not inform the Cains, Bachmanns, Palins or Gingrichs or the rabble who support them, nor would the public trust any "elitist" "Libtard" "pinhead" over the kind of small minded moral abomination now stumbling toward Washington.

(Cross posted from Human Voices)