"Some important lessons emerge from the story. One lesson is that ideas are critical. The gold standard orthodoxy, the adherence of some Federal Reserve policymakers to the liquidationist thesis, and the incorrect view that low nominal interest rates necessarily signaled monetary ease, all led policymakers astray, with disastrous consequences. We should not underestimate the need for careful research and analysis in guiding policy. Another lesson is that central banks and other governmental agencies have an important responsibility to maintain financial stability. The banking crises of the 1930s, both in the United States and abroad, were a significant source of output declines, both through their effects on money supplies and on credit supplies. Finally, perhaps the most important lesson of all is that price stability should be a key objective of monetary policy. By allowing persistent declines in the money supply and in the price level, the Federal Reserve of the late 1920s and 1930s greatly destabilized the U.S. economy and, through the workings of the gold standard, the economies of many other nations as well."
What did you learn in school today?
Bernanke: You can't be too easy.
Constraining the money supply is the killer. This time we're just going to keep pouring on the money.
Seventy five years from now, we'll have a speech just like this one, arguing that there is a perfect golden mean -- not too tight, not too easy. With warnings of the dangers of both excesses. Easy Al is Scylla, the Gold Standard Charybdis.
So where does that leave us? The crack-up boom?
Cheers,
Kailash |
